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A recent survey revealed 89% of small businesses are concerned about their future, with many business owners more anxious about their business now than during the pandemic. Diving into the detail, this concern isn’t just stemming from external factors such as a decrease in customer spending but also internal factors surrounding profitability.
With several factors impacting a business’ profitability and external factors on the rise, do you know what risks could impact your future? And most importantly, do you know how to stop them or decrease their level of impact?
To help you better identify business risks and turn them into improvement opportunities, here are some steps and insights you can apply.
What is business risk?
Simply put, business risks are factors that threaten your business profitability and its ability to operate.
Some risks can come from within your own business, while others can be external factors that are completely outside of your control. They can also be a mix, leading to more complexity when it comes to risk management.
Types of business risks
| Direct risk | A risk that can directly impact your business and is within your control. | Examples: Poor customer service or staff training. |
| Indirect risk | A risk that can indirectly impact your business and is outside of your control. | Examples: Regulatory or government changes. |
| Internal risk | A risk that comes from within your business that you can prevent or mitigate. | Examples: Workplace health and safety or staff retention issues. |
| External risk | A risk that comes from external sources or factors that you have no control over. | Examples: A natural disaster or supply chain disruption. |
Identifying potential risks
While it’s great to categorise risks, the real power comes from identifying specific risks and understanding their potential impacts.
This can be a complex process and it can be hard to identify external and indirect risks, which is why many businesses work through this with business advisors such as Mead Partners. It’s also important to identify potential weaknesses that could also impact your business either short or long term.
Part of this process involves building out potential scenarios that could pose a risk. This could be stepping through what would happen in the case of a natural disaster or if your biggest client didn’t resign next year. Here, it’s important to ask yourself:
- How would the scenario play out?
- How likely is this scenario likely to happen?
- What impacts could occur and at what level?
- What would we need to manage the situation?
- Do we have what we need in place or do we need to implement it?
- What triggers do we need to look for, and how would we identify future risks?
Not sure where to start or look? We’ve developed a handy business risk survey to help you better identify risks for your business in a couple of simple questions.
You’ve identified the risks. Now what?
Now that you know your risks and what the flow-on impacts could have, as well as any weaknesses in how you could respond, you can start putting controls in place to better manage them.
Here, it’s important to understand your appetite for risk. While this might seem like an odd term, it’s really just asking: How comfortable are you with risk?
If you’re not comfortable with any level of risk, you or your business advisor will put controls in place to eliminate and avoid the risk. If you’re comfortable with high levels of risks, you may create strategies that don’t come into effect until a certain trigger occurs.
Working with your business advisor, you’ll be able to create strategies to either:
- Reduce potential impact
- Avoid potential impacts
- Eliminate impacts (or the risk itself)
All this goes into creating your risk management plan or be bundled into a business improvement program specific to your business.
Reviewing your risk management plan
Our business advisors recommend reviewing your risks each quarter to make sure any strategies you implement are relevant and no new risks are lurking.
By doing this as part of a wider business improvement program or quarterly review with your business advisor, you can get real-time feedback and proactive advice to make strategic changes.
Turning your business risks into opportunities and business boosters
Understanding business risks can not only help you avoid or reduce their impact but can also allow you to leverage risk insights to drive business improvements.
If you’ve identified a potential risk associated with the type of clients you have, you might look to diversify your client base and unlock new revenue streams.
The risk is associated with a supply chain issue? You might look into other suppliers, in turn being able to negotiate better payment terms or pricing.
This is why our business advisors start every business improvement program by understanding your unique business risks. By doing so, we can analyse your risks and identify strategies that not only reduce their impact but drive business improvement over the long term.
There are also other benefits of working risk management into your improvement plan. While strategies are great, often the difficulty lies in how you implement them into your business – especially if you are a small business owner.
With a detailed action plan provided with each and every business improvement program, our team will help keep you on track and make the changes more manageable with clear tasks required for each change.
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