There are several risks when managing your own business, and they vary across different industries. These are some things you should consider when doing risk management in your business.
Calculate risks of different actions before making decisions
Before making any major moves or changes of direction in your business, think about the consequences long term. Will it over the span of 5 years be a good thing to do, or are you just trying to save your current quarter?
Sometimes things that are not so good for the long term are necessary evil to stay in business but try to prevent doing any long-term damage to your operations with these actions.
Thinking long term and sticking to your long-term plans will keep your business on track to greatness. Don’t get me wrong, sometimes major changes to the plan are necessary and good thing.
If you feel like the actions will have a positive impact on your business over the long term, why not? Play for the long term and sacrifice short term profits to achieve greatness over the long run.
What is the worst thing that can happen?
What is the worst thing or are the worst things that could happen? When you have thought of different scenarios, you can make plans ready if those things ever happen. Knowing you have some instructions ready if things go sideways can relieve your stress and make things easier in bad times.
Thinking about the worst things that can happen to your business can also help you prevent those things from happening. If your company is purely dependent on oil, and the price of oil is rising, it might be a good thing to change some of your equipment to electrical ones, for example.
It is always not as easy as this, but there can be ways to diversify your risk when depending on just one source of power or something else.
Another thing that might be a worst case scenario for some businesses, is that new competitors show up. You can prevent new competitors from taking your customers by making your product or service better.
Make it so good, that it is very hard for new competitors to even come close to what you are offering. I have a post about how to increase customer loyalty; you can read it here.
Don’t rely on one customer
Next thing on my list is don’t rely on just one customer. This is mostly on business-to-business scenarios where companies only have one customer. When selling to consumers, these scenarios where you only have one customer are extremely rare.
If you only have one customer, they have too much power over you, your business, and the lives of your employees. There are two things that can go bad.
First, they can go out of business, or face a bad season. If you were only relying on one customer, this would know the same things to you. If your only customer goes out of business, you don’t have anyone to sell to.
Another scenario is that they start to find another supplier, knowing that they are your only customer; they have too much power over you in the negotiations. They can pretty much say any price, and you have to take it, or you are out of customers.
Not relying on one customer will help you in several ways. It gives you power on price negotiations, since you have other customers as well. Another thing is that even if one of your customers goes out of business, that doesn’t necessarily mean the same thing to you. It might lower your sales in the short term, but it won’t take you down for good.
Don’t rely on one employee
Another thing about relying on one specific part of your business, is not relying on one employee. If you are the only employee yourself, at your own business, then there is nothing to worry about. However, if you have employees, and one of them is bringing in most of your revenue, there might be reason to worry.
If your employee realizes how valuable they are to the business, they might demand very high pay rises. They know that if they leave, you will lose most of your revenue and in the worst case scenario, go out of business.
By not giving too much responsibility to one employee and not relying too much on one, it diversifies the risk if your employees want to switch jobs or ask for big pay raises.
If your company does still rely on one employee only, it might be a good idea to take them onboard for your business. Offer to sell them part of your business. This doesn’t even have to be a big portion. Even a small part of the company is likely to keep them working for you.
By making them part owners of the business, they will more likely be staying instead of switching jobs. Their productivity might also increase, since they would be working for their own good, instead of just yours. This is not good for every scenario. You should think hard before giving away even smaller parts of ownership of your hard-built business.
Diversifying is most of the times the simplest way to manage risks in your business. That could be supplier, customer or employee, diversifying can help save you, if things don’t go as planned.
There are also other industry-related risks in different businesses. You should create a risk management plan, where you consider the worst things that might happen, how likely they are to happen, and how you deal with them. There can also be ways to prevent things from impacting your business if things happen to go bad in your field of business.
Every situation and business is unique. Hopefully you can apply some of these things to your business. That’s about it, have a nice day.