Risk is more than just a topic of conversation during insurance meetings or annual planning conferences.
It’s a concept that is part of the majority of daily business decisions. It’s there when considering who to rely on, how to effectively build a staff, and when to pivot when something changes.
Oftentimes, the challenge for businesses is not identifying risk, but rather, how to organize it in a way that helps them make those crucial decisions.
Here is a practical 7-step approach to preparing for risk:
Set the in-depth spreadsheets and scoring systems aside. Simply ask yourself what changes would disrupt the business in the next 30 days to three months. Would it be a key customer walking away? A hardship in hiring enough staff? Skyrocketing prices for materials?
This is the time to evaluate where you have your eggs. Every business has concentration risk; it just may not be apparent. Look at:
If one of those categories carries too much weight, consider it a risk to address.
Some risks can be managed directly, like pricing, inventory and staffing. Others can’t be, like interest rates, supply chain disruptions and new regulations.
Clarity here is important because it prevents company owners from wasting valuable time trying to solve issues to which they can only adapt.
Three basic scenarios can help you identify areas that need your immediate attention.
The object here is not to panic while finding the magical solution. You are simply trying to determine where your company may be most exposed and create a backup plan that will lessen the risk.
As noted earlier, risk comes up a lot, and it changes too often to be an annual discussion. Monthly reviews and adjustments as needed can keep risk levels low. It is less about implementing complex modifications and more about keeping things consistent.
Leaders often learn that when everyone is in charge, no one really takes charge. An assigned person to focus on a certain risk area can see warning signs before something drastic happens.
Every risk identified by a company should have a response ready to go. This is the difference between discussion and action. For example, if costs reach a certain level determined by leadership, prices should be adjusted. If cash dips below a certain threshold, slow spending for a certain amount of time. These are simple triggers put into place that can give leaders peace of mind, especially when those risks that are beyond control creep up.
There are no crystal balls to predict the future when it comes to risks in business ownership. However, a well-thought-out plan and a simple strategy can help avoid many surprises. Rather than striving to eliminate risks, find ways to see them earlier and react faster.
That’s the real advantage.
