EA - Risk Management - Essential Tips for Small Businesses

Risk Management: Essential Tips for Small Businesses

Risk is an unavoidable part of owning a business. But just because you are investing in something that could be a profit or a loss, doesn’t mean that you should be exposed in areas where the risk can be minimized. When it comes to risk management for a small business, a few specific steps can be followed to help you diminish the loss potential.

Risk Management Needs Change with Time

Keep in mind that risk management changes with time. The steps that were effective when you started your business many years ago might no longer be sufficient for what is required in our modern day. The business world is changing each year, and technology means that your business is exposed if you aren’t proactive about your risk management practices.

Even if you have a few risk management initiatives in place, it is smart to check with industry experts to evaluate systems and look for potential improvements. For example, work with a tech team to ensure that your website is secure and protected against hackers and malware. You can also hire an outsourced accounting team to evaluate the financial systems that are in place, helping you to avoid possible theft or fraud by employees.

Managing Risk is the Foundation of a Successful Business

The long-term sustainability of your company depends on what you are doing right now to minimize risk and maximize profits at the same time. If you are sloppy with your risk management, then mistakes will cut into your profit margins and eliminate the extra cash that could have been used for reinvestment.

You can’t avoid every possible risk that might affect your business. But you can be smart in your industry and pay attention to some of the most critical factors that have proven to be problems for other business owners.

7 Tips for Small Business Risk Management

Here are a few important things that should be considered as you are designing a risk management program for your company:

  1. How Much are You Willing to Risk? It doesn’t matter if you are investing in a new product or trying a different marketing campaign; you need to know how much money you can afford to risk. Current, accurate reports through your accounting system provide you with detailed information regarding cash flow, liabilities, and extra money that can be used for the investment. Work with your outsourced accounting team to understand the details of the report so you can use this information while making decisions about the amount of money you can spend. Always avoid a new investment or venture that requires so much cash that you will be unable to stay in business if something goes wrong.
  2. Investment in Insurance Coverage: A good insurance policy can go a long way to ensure that you are protected if something goes wrong. Talk to an insurance expert to identify the coverage that might be a good fit for your business needs. It’s smart to have insurance coverage on your real estate holdings or rental properties, which will cover the costs if your building and inventory are damaged in an emergency. At the same time, you need Worker’s Compensation insurance to cover possible injuries on the job, as well as liability coverage if something happens when a customer is in your store. Some industries, such as medical professionals, can invest in malpractice insurance if needed.
  3. Create a Risk Culture: Not only do you need to train your management and upper-level staff on risks within the company, but all team members must understand how various risks might affect the success of the business. Ongoing training regarding beliefs, attitudes, and policies ensure that everyone is on the same page in the way the decisions are made on a daily basis. This risk culture starts with the top management, then works its way down through all team members.
  4. Identify Potential Risks: Specific risks vary depending on the industry, as well as the products and services that are offered. Any circumstance or event that could have a negative impact on the business can be considered a risk. For some businesses, there is a risk of theft if employees or visitors steal inventory or equipment. On the other hand, a digital company might be at risk due to website hacking and data theft. In the construction industry, employee injury can be a risk that could cripple a business financially if something goes wrong on the job site. Since risks vary from business to business, it’s up to you to identify the specific risks that could be impacting your company right now (or in the future).
  5. Manage Identified Risks: When possible, put various systems in place so you can manage the risks that have been identified. Potential management strategies might include monthly reconciliation and regular account checks to avoid financial theft. Or, you can invest in a great security team if needed. This proactive approach will help by minimizing the problems associated with certain problems that could affect the profitability and reputation of your company.
  6. Prepare Contingency Plans: You don’t want to expect the worst, but you need to be sure you are prepared if something happens that affects your business. This contingency planning means that you know how to handle the situation if your business can’t operate because the building is damaged, or a key person is unable to work for a time. Also, you should have contingencies in place for large contracts and big transactions.
  7. Ongoing Risk Review: Just because you are implementing good risk management strategies right now, doesn’t mean that you are set for the future. Mark your calendar to review your risk plan at various points throughout the year, ensuring that you are staying ahead of new risks that might pop up.

Common Business Risks

What are the risks that could affect your bottom line? These are some of the most common business risks that can occur:

  • Safety
  • Security
  • Property loss
  • Technology
  • Customer management
  • Business interruption
  • Delivery services
  • Financial systems
  • Employee injury
  • Compliance with regulations and laws
  • Reputation
  • Key person loss

If you expose your business to the wrong risks, it could be the downfall of the company if the risk is too high. While you need to take risks to start a company and grow the business, you should always be strategic about the risks you are willing to take.

Finding the Balance Between Profitability and Peace of Mind

As a business owner, you can’t hide and hope that nothing bad happens to your company. If you want to be profitable, then you need to take various risks. At the same time, you need to evaluate the weight of these risks and make the right decisions that will give you peace of mind in the future.

If business risk isn’t anticipated and addressed, then you could be facing serious repercussions in the future. When something goes wrong, it could result in a setback for your company, or worse… business failure. The key is to find the right balance between the risks you are willing to bear and the services that are offered to your customers.

Your goal is to provide customers with excellent services and products, while maximizing the money that comes in and containing the money that goes out. This process helps to boost profits. But your profits can be lost in a moment if something happens unexpectedly and you aren’t prepared.

Work with a Financial Expert to Minimize Risk

When it comes to risk management, it all comes down to the numbers. You need to know how much risk your business can bear without experiencing too much loss or damage. Too often, small business owners procrastinate this work because they aren’t willing to dedicate the time and effort that is needed to get a clear picture regarding the financial health and stability of the company.

If you have been leaving your financial reporting and strategy on the backburner, then it might be time to hire an experienced accounting team for assistance. These services can be used to evaluate your business success, potential losses, and create a plan for the future. Support from a trusted, experienced accountant is invaluable and can have a positive impact on the long-term trajectory of your business.

Call Us at Easier Accounting

Why should you choose the services offered by our team at Easier Accounting? We understand the unique challenges faced by business owners, and we offer years of experience working with entrepreneurs and small businesses. Our goal is to help you create financial systems that minimize the risk of fraud and theft, while also providing the reporting necessary so you can make accurate, clear decisions for your company.

Whether you are getting ready to start a business, or it’s time to overhaul your current financial system, Easier Accounting is here to assist. We offer full-service accounting solutions to support the unique needs of your company. Call us any time to learn about the way our services can be used to reduce potential risk in your business efforts: (888) 620-0770.

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