In a stable environment, a well-established, seasoned firm has risk management procedures built into the companies DNA. But in a world of change and an unstable economy, critical business risks are more difficult to spot, let alone manage effectively. Business risk is a circumstance or element that can have a negative effect on a business’s operations and profitability. It can be a result of an internal circumstances or an external factor. While it may be difficult to draw a line in the sand between business risk and other types of risk, such as market risk, one thing is certain, the smart business owner does everything he can to reduce business risk.
Know Industry Regulations
Most businesses have regulations that govern their operations. Becoming an expert on your industry’s regulations is an important way to reduce business risk. When you abide by the regulations of your industry, you’ll have the law on your side. Always keep up with new and changing regulations, and make sure your company is in compliance with them.
Purchase Business Insurance
Having proper business insurance not only gives you peace of mind, but it is one of the best ways to reduce business risk. Further, don’t risk your personal assets by not protecting them from business liabilities. There are a number of different types of business insurance, so it’s important to customize the insurance for your business to fit your specific needs. Types of business insurance includes errors and omissions insurance, commercial package insurance, malpractice insurance, crime insurance, professional business insurance and more.
Implement Internal Controls
Even if you’re a start-up or small business, you need to establish solid internal controls in order to reduce business risk. Internal controls can include everything from keeping everything documented to separating cash handling duties. Keep good records of purchases, sales contracts as well as procedures followed in compliance with laws, regulations and financial/tax guidelines. Keep a paper (or electronic) trail of all transactions and agreements to reduce liability in case there is a future discrepancy or disagreement.
Risk management is something that every business has to manage from start-up throughout the company’s life. While you may not be able to eliminate all the risks that your small business will face, you sure can minimize their occurrence or reduce their impact.