Risky Business: Managing and Minimizing Risk in Your Business

Risk is an inherent part of any business venture. At any given time, something unexpected can crop up, causing your regular business operations to skip a step, and lose productivity or merchandise. That, in turn, can result in the loss of money and/or the capacity to bring it in. According to the Small Business Association, "A risk is something that can halt, slow, or affect the profit of your business." That doesn’t mean, however, that you’re powerless over risk. Facing the risks of running a business begins by identifying them and their sources.

Let’s talk about some of the risks many businesses face - and how to minimize their effects on your company.

Some risk comes from the fact that you have a business in the first place. These are potential weaknesses - elements over which you can exercise a good deal of control to shore up. These internal risks include:

• the personal health and well-being of everyone who enters your place of business
• in-house security against theft or fraud; IT and data security
• human error
• the condition of equipment and the building

The risks of loss from these can be minimized with some prudent pre-planning. Train multiple employees to perform critical tasks so no duty is dependent on one person who could potentially miss a day or more of work. Make certain your facility is clean and in good repair so it’s not causing illness or injury to employees and/or customers. Employ systems to ensure that the handling of merchandise, equipment and money are carefully monitored. Ensure that employees are well-trained and that there are redundancies in place to catch errors. Maintain equipment and your facility so value and safety standards are retained; and work is not impeded due to damage in the workplace.

Other risks fall more squarely under the category of threats; they are usually external to your business and, therefore, less under your control. These include:

• changes in the market
• rising operating expenses
• weather and natural disasters
• changing laws regulating your business
• changes in your community

You have little to no control over these - and many other situations; yet they will nonetheless impact your business’ bottom line. The best you can do when impacted by an external risk is to be prepared with a contingency plan to pick up the slack caused by such a threat.

Have a plan in place to free up funds so you can continue to pay your expenses, meet payroll and keep your business operating. That plan can take the guise of business insurance, a rainy-day fund or line of credit, or the liquidation of other assets. In short, any means by which you can easily access the finances you need to stabilize your business when it encounters stormy seas. In addition to keeping your business humming along, your creditors will like to see that stability reflected in your financial records over time. It makes you less of a risk for them because it indicates your business is strong, resilient and has longevity on its side.

Another way you can mitigate the effects of threats to your business’ success is to avoid putting all your eggs in one basket. Specifically, utilize several suppliers for products and services you need to operate your business. That way, when circumstances (i.e. availability or cost) prohibit you from doing business with one, you have an established relationship with other vendors with whom you can work. This practice can provide the agility you need to navigate what could be a disastrous situation for a lesser-prepared company.

Much of what it takes to avoid - or at least minimize the fallout from - these inherent risks has to do with preemptive action and planning. Adopt a risk-assessment mindset and build it into your overall business plan. When you make peace with the fact that risk is part and parcel of business, you won’t have to "fear for the worst" because you’ll be prepared for it.

How are you prepared for the risks associated with business ownership?