I AM IN BUSINESS AND WANT TO DO BETTER
7. Reducing Business Risks
There’s risk in everything we do, but business presents a number of them including this triple-threat: market risk, internal risk and financial risk. It’s little surprise that business owners, be they at the start-up stage or as operators of long-established companies, approach each day with some trepidation. However, business risks can be reduced, and so can that lingering anxiety.
To best understand how to reduce the risks you face in business, we should define what the “Big Three” actually mean and how you can manage them:
Market risk: This type of risk is the possibility that the market might not want your service or product. It is common to all businesses but one that is easy to minimise through market research which includes customer profiling.
Primary market research will let you know how successful your product or service might be among your target market. Primary market research is the gathering of firsthand information on your market and customers. It might include online surveys, phone interviews, focus groups, or even observation of how your customers interact with your products.
Market research can also involve secondary research, which is intelligence collected from indirect sources: industry statistics and trends, market reports and competitor analysis are a few examples of secondary research. Together, primary and secondary research will tell you what is trending in your industry, what your customers actually want and need, and what converts them from prospects to customers.
An integral part of any market research is customer profiling: this is the creation of ideal customer personas. These personas assist you in visualising your market, how you’ll communicate with them and construct your marketing strategy. A profile of your perfect customer would include:
- Job title
- Family size
This information shapes the “ideal customer” persona which you then use as a guideline for reaching out to and learning about the real people you want to attract. This is the person you have in mind when refining your product or service.
Internal Risk: Internal risk is faced by a company from within and can compromise the day to day operations of the company. Internal risk consists of three factors: human, technological, and physical.
The human factor might include poorly trained or unskilled employees who are just not up to the job, unmotivated team members who hamper overall productivity, slack service from external suppliers, or slow-paying clients. Many of these factors can be managed and controlled in no small degree; for example, a greater focus on training, smarter recruitment, boosting employee morale through higher compensation and empowerment or changing to more reliable suppliers.
The technological factor might include using outdated systems that decrease production, or not having sufficient IT support to keep systems operating. It can lead to server and software problems that cause equipment downtime and financial loss due to lost revenue and workers with nothing to do. Many of the risks inherent in the technological factor are easy to reduce. For example, more investment in technology, regular audits to reveal what is obsolete, and employing experts to keep technology operational and up to date.
The physical factor pertains to the loss or damage to a company’s assets, such as people, buildings, and equipment. Fire, flooding, theft, and workplace accidents are all examples and, like human and technological factors, you can do a lot to lessen the risk of potential harm. Revisiting your workplace health and safety policy, installing state of the art alarms, or increasing internal and external surveillance are some obvious examples.
Financial risk: This is one that causes the most dread among business operators. After all, everything else is irrelevant if the financials aren’t sound. Financial risk relates to the possibility that your business won’t turn a profit and, instead, will lose money. One of the biggest fears relating to financial risk is the possibility that cash flow won’t be enough to meet financial obligations. It’s a rational fear: a lack of cash flow kills most businesses. Of course, we could say that increasing sales and reducing costs will reduce your risk, and while that will indeed be beneficial, it is undoubtedly a case of easier said than done. When it comes to managing financial risk, our advice is simple: surround yourself with experts. The complexities of profit and loss often need an outside perspective to make sense of them all.
At this point, it’s prudent to introduce another risk. That is an external risk, which is the threat that external forces might pose to your business. These forces might include new competitors or disruptive products, emerging technology, changes in government and legislation (the introduction of the carbon tax is a classic example), international issues that might affect exports, and events that come right out of the blue and change everything: COVID-19, anyone? While the factors in external risk are usually out of your control, a business that has reduced its market, internal and financial risks is better prepared than most to handle whatever comes out of the left field.
We’re here to help you identify the risks that pose the biggest threats to your business, and reduce the impact they might have. The anxiety that accompanies business risks will also be minimised, so for all-round peace of mind, get in touch.
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