Part 3 of our blog article series: "Strategies for business success"
The moment you open your business doors for profit, you can be sure that risks are following close behind. And in today's open-market world, business risks are increased even further due to the impact of changes to the global economy.
To stay on top, major business decisions should be made after carefully balancing up the risks versus the expected rewards for any project. To protect your company's operational and financial well-being long-term it is important to identify not only the risks that your business is currently facing, but also those risks which may become a problem in the future.
Identify your risks
A solution can only be found once the problem is identified, so knowing your risks is step one. The types and scale of the risks can vary depending on your company's operations and industry, however the following situations can have serious ramifications on the long-term success of a business:
- Reduction in consumer disposable income
- Exchange rate fluctuations
- Shortage of skilled labour
- Economic downturns
- Technological advances
Staying informed about local, national and global trends and developments can go a long way towards predicting changes which could impact your business model, products or services. This foresight will help your business to remain relevant and stay one step ahead of the competition.
Classify your risks
Business risks can be grouped into three categories:
Financial risk: Financial risk impacts your company's cash flow, income and shareholder wealth. It encompasses being able to meet your commitments as they fall due and the ability to cope with changes in the market such as interest rate movements, commodity price variances and credit risk.
Strategic risk: Strategic risk is determined by your company's business functions, investor communications and operating environment. It is affected by the market where it sells and buys goods and services. Environmental risks such as changes in Government and compliance regulations can also impact your company. Changes in supply and demand, and competitors that vie for sales in your market, can all pose considerable strategic risks.
Operational risk: Operational risk can be broken down into two sections: process risk and product risk. Process risks involve staff, equipment, materials and business procedures, which can all upset a company's' continued operations. Product risks include product improvements and developments, and a company's approach to the research and development of new products and/or services.
Categorising your risks will provide clarity on the issues at hand and offer a sound foundation for building the solution upon.
Mitigate your risks
After identifying and classifying the risks your business is facing you can begin developing strategies towards eliminating, or at least mitigating, those risks. Getting your business team together to brainstorm ideas and think outside the box may result in some surprising solutions that can not only keep your business profitable, but accelerate growth beyond expectations.
As business advisers we make it our business to keep up with trends that could impact our clients bottom line. If you would like assistance with your business risk assessments, contact our office today – one of our friendly advisers will be ready to help!
Keep on eye on our blog this month as we present a series of articles on
strategies for business success
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