Tag: small business risks

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Types of small business risk

There are several types of risk you will normally face as an entrepreneur. Let’s have a brief look at each one, and how you can handle them.

Supply Chain Risk

Your supply chain refers to the companies that provide you with raw materials, manufacturing and assembly activities, or inventory. When a supplier faces financial hardship and can’t provide supplies and the business owner has no back-up supplier, the risk to the business is great — lost sales, lost customers. Finding a contingency or back-up supplier is an important part of managing small business risk.

Intellectual Property Theft

Unfortunately, intellectual property theft and piracy can’t be stopped but the savvy business owner can investigate suppliers and manufacturers before they commit to doing business with them, and registering all trademarks in all countries in which the company is doing business.

Regulatory Changes

The risk of increased regulation, taxes, new laws and rules is very real and there is little a small business can do to prepare for them. Regulations and paperwork are frustrating for growing ventures and the cost of compliance — the time and resources required for a small business owner to comply with government rules and regs — is increasing every year.

Product or Service Liability

A growing small business, particularly one that manufactures a product, should plan for a potential product liability lawsuit (litigation) at some point in the company history. Mitigating the risk of product liability from the very beginning by running an efficient operation with clear safety and product quality standards will help prevent a legal minefield.

Cyber Security Risk

For those small businesses that conduct business online, one of the more recent risks faced is cyber security risk: hackers who attack computer networks, phishing attacks (gaining access to sensitive data such as user names and credit card information), and viruses. A study conducted by the FBI found that 29% of US companies had secured insurance policies to manage internet risks. Make sure your insurance policy covers you if you conduct any part of your business online.

Sales Decline

A decline in sales is usually met by an entrepreneur’s denial. In very small companies, the entrepreneur often is the sole employee responsible for all day to day operations of the business. Often, they lose sight of customer’s wants and needs and changing market conditions around them. Lowering prices is usually not the best response to a slowdown in sales. If customers understand the value of a product or service, lowering the price often confuses existing customers. When a growing business first notices a drop in sales, it’s time to find the root cause and make strategic changes.

Loss of Key People

No business can count on keeping key members of the team forever. People change, circumstances change. Succession planning — identifying people who can take over the company in an emergency, or take over the company permanently when the entrepreneur wants to exit — is an important part of managing business risk, particularly for the smaller business. Cross-training key people is one way to limit the risk of a business being left without someone to steer it.

Global Environment and Health Risk

Central banks and other authorities are now considering climate change as a risk to financial stability. According to the Global Sustainable Investment Alliance, investors, too, are making the climate more central to their activities. In recent years, more than US$30 trillion in funds were held in sustainable or green investments globally, a rise of 34 per cent in just two years. The COVID-19 global pandemic is an example of a global health risk that had significant impact on small businesses worldwide. Learn more about the challenges facing our environment and our global health – get educated! Create a climate action plan for your business and scan the business environment for potential threats to your small business livelihood. Create an action plan that can be implemented quickly. Forewarned is forearmed!

Financial Risk

Financial risk is the ultimate risk for most entrepreneurs — lose the business and you’ve lost your investment. Managing regulatory, operational and market risks will limit the financial risk of running a business. Whichever risks you face with your business, remain practical and realistic. Avoid overanalyzing the situation or getting stressed out over the significance of your decisions and actions. Risks should be identified, analyzed and prioritized to make decisions easier on management.

Want help making decisions about risk? Check out our recent blog post about tips for managing risk in your small business!

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Tips for managing small business risk

Risk is a fact of business life. Understanding where risk lies allows you, as a small business owner, to prepare ahead of time and develop strategies to minimize business risks.

To help you manage risk and make decisions effectively, you’ll need to develop a number of skills. Decision-making and risk management can be learned by anyone, but it’s up to you to strengthen them as much as possible.

Things to keep in mind when facing risk

As an entrepreneur, you’ll face unexpected decisions along with routine and planned decisions— it’s important to be able to deal with both. When making decisions, keep these things in mind:

  • Have a clear understanding of the decision to be made
  • Consider the vision and values of the company
  • Evaluate the consequences and outcomes of your decision
  • Brainstorm as many alternatives as possible
  • Evaluate the pros and cons of each alternative
  • Be sure the appropriate person is making the decision
  • Understand the timeline in which the decision must be made

I’ve made a decision – now what?

Once you’ve made your decision, you should re-examine it and the effects that it’s had. Avoid relying too much on expert information but ask others for their opinions when it’s necessary. Be realistic when evaluating alternatives and avoid hearing only what you want to hear. Remember the importance of the decision, but don’t focus so much on the significance of the decision that you’re too stressed to make an effective assessment.

Avoid overanalyzing the situation or getting stressed out over the significance of your decisions and actions. Risks should be identified, analyzed, and prioritized to make decisions easier on management.

First, determine the possible consequences that could result, and then develop a list of ways to reduce the risk. You could choose to avoid, reduce or transfer the risk. Mitigate your risks as much as possible by using technological and human resources. For example, you can mitigate or transfer risk by purchasing insurance. Once you’ve evaluated alternatives and decided on an action plan, set out a framework and timeline for your actions. Be sure to include any relevant people when devising a risk management plan, like your public relations representative in a risk involving the company’s image, or your accountant in a risk involving the company’s finances.

We’ll leave you with some good news — when it comes to managing risk, small and medium enterprises are better at it than larger companies!

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From the archives: How entrepreneurship is like riding a motorcycle

Four years ago (to the day!), GoForth President and Founder Dr. Leslie Roberts wrote a great blog post about her own experiences with motorcycles – which of course is like the experience of entrepreneurship.

I was about 35 with children of my own when I decided it was time to take my rightful place behind the throttle. Those of you in the learn-by-doing category would say, “Hey, just hop on. You’ll figure it out. After a couple of crashes, you’ll learn what not to do.” Those of you in the learn-by-education category would suggest a class on safe motorcycling first, correct?

Find out how the lessons Leslie learned on her bike are similar to the lessons we can learn as entrepreneurs: How entrepreneurship is like riding a motorcycle. 

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How entrepreneurship is like riding a motorcycle

Do you believe entrepreneurship can be learned? Or do you believe the only way to learn how to run a business is to get out there and learn from the school of hard knocks?

At GoForth Institute, we fall somewhere in the middle of these two camps. We believe that vital small business skills can be learned first and practiced second. This takes me back to the days of wanting to learn to ride a motorcycle. Growing up with older brothers who were into anything with wheels, I had the opportunity to ride motorcycles as a passenger, or “two up” as we say, but never as the operator. I was about 35 with children of my own when I decided it was time to take my rightful place behind the throttle. Those of you in the learn-by-doing category would say, “Hey, just hop on. You’ll figure it out. After a couple of crashes, you’ll learn what not to do.” Those of you in the learn-by-education category would suggest a class on safe motorcycling first, correct?

I believe in reducing risk – the risk that my sons would grow up without their mom. Off I went to motorcycle school – a one week intensive classroom and parking lot skills training program. Got my license, bought a small Honda 250 Rebel and starting practicing my new skills on my new bike in my neighbourhood. Starting, stopping, turning, signalling, shifting, braking, emergency braking – all manoeuvres that were new to me. My instructor told me to practice these skills 80 times each – correctly. That’s the point at which muscle memory takes over. She told us you won’t have time to think on a motorcycle in an emergency. The difference between life and death is the rider’s muscle memory. I put 3,500kms on my Honda before I left the neighbourhood. Obsessive? Maybe. After several years of cautious city riding and practice in parking lots, it was back to school with a new, more powerful motorcycle – but this time it was race school. Fast forward 12 years, I still ride and my husband and one of our sons rides too. It’s a great family activity and a great way for me to leave the stress of entrepreneurship behind for an hour or so.

Learning to run a business can be the same. Take the time to learn the skills that will keep you alive out there – practice them in a safe environment before you take them to the streets. Take some small business training, learn to apply those skills, and take more training as your skills improve and you want to take your business to the next level. Don’t forget your helmet and enjoy the ride!

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