How to identify risks to your business
No matter whether you’re a business owner, project manager, or team leader, it’s important to be aware of the risks your company faces. And how to minimise them.
Without careful thought, your business could suffer from sky-high costs, recurring problems, legal action or even closure. Let’s take a closer look at some of the biggest risks small businesses face and ways and the steps you need to take to put a risk management plan in place.
What is risk management?
Put simply, risk management is identifying assessing and preventing any issues that may be considered a future problem for your business.
By simply identifying the possible risks you may run into and putting a plan in place to deal with them, you’re actively safeguarding your company, your staff, and even yourself.
It’s all about stopping problems before they happen, and completing regular risk management practices is a good habit to get into.
When creating a precise risk management process, you firstly need to think of general risks that could cause problems to your company, the way it works, or the processes your team use. After that, you can begin to work on a foolproof safeguarding plan against these potential issues.
What are the key risks to businesses?
Now that you understand what risk management is, what are the key business risks to look out for?
1. Physical risk
Physical risk means any issue that poses a threat to physical things like your building, equipment, or staff, including fires, theft, flooding or vandalism.
If you’re not fully protected against these physical risks, your company could pay the consequences in many ways.
You could lose valuable time, effort and money in repairs and claims. In extreme cases of physical risk, you could even find yourself at the end of legal action and damage to your reputation if you don’t fully protect your business. That’s why it’s so important to identify risks before they happen, then you can be ready for them.
2. Strategic risk
Strategic risk is all about weighing up if a strategy is good or bad for your business. If you have a well thought out strategy then your business will reap the benefits, but a poorly executed plan could see your whole company suffer greatly.
A poor strategy can result in multiple challenges, from low sales and poor profits to dissatisfied customers and reputational harm.
3. Compliance risk
All businesses must stick to certain regulations and are governed by rules to keep both company and the consumer safe.
Some regulations will be unique to your organisation or sector, but others will be more generic like health and safety regulations and data protection laws.
The risks of not being compliant can be severe and you could face legal action in some cases. Loss of custom and tarnishing your reputation are also big consequences that can be avoided in many cases by simply being aware of these risks.
4. Operational risk
Operational risks are issues that may arise during the general day to day running of your business.
These problems can be things like human error or inappropriate staff behaviour, but can include other problems like system failure, fraud, and embezzlement.
If you don’t protect yourself against operational risk then you will potentially have to deal with lost time, revenue, and reputational damage. It’s also vital to remember that staff behaviour can impact your business at any time not just at work.
5. Technology risk
Running a business in modern life can be a balancing act. In many ways technology is so rewarding and a great way to reach more customers, but it comes with its own risks.
Cyber-attacks and reputational damage from data breaches affect many businesses each day, big and small.
Technology risks can also include issues like loss of power, which is why it’s important to choose a reliable energy supplier for business gas and electricity. Some companies counteract this and minimise the risk of outages by generating their own power onsite, minimizing the risk of technology blips.
6. Financial risk
Financial risk is anything that might negatively affect your business’s finances and can include things like bad money decisions, poor planning, and fraud.
Taking bad financial risks can result in loss of income and an overall negative cash flow, businesses may even face bankruptcy if risks are not managed properly. That’s why it's so important to safeguard against financial problems and work out if your company is likely to have to deal with them.
7. Reputational risk
Reputational risk is anything that damages your reputation as a business and is often a consequence of poorly managed risks.
Companies may fail to act responsibly or make poor decisions and because the world is so technology-based now, it’s easier than ever for customers to publish bad reviews on the internet or call companies out when they’ve done something wrong.
It’s more important than ever to understand and be aware of what you are posting online as a business. It’s good practice to make sure that your content reflects who you are as a company, you then reduce your likelihood of dealing with reputational risk.
What are the five steps in risk management process?
Now you’re aware of the main risks to look out for, it’s helpful to work out how you will start a risk management process. Here are the five main steps to follow when creating an effective process to safeguard your business.
Step 1 - Identify the risk
The first step of creating an effective business risk management plan is to identify the potential risks. Work with your team to recognize any issues in the workplace that could have a negative impact on your business. Here are five key risks to consider:
- Theft or loss of equipment or stock – It's vital to have the right insurance in place because you can lock up your building but can’t always stop theft.
- Loss of income – Insurance is a great idea as if your business ever had to close due to unforeseen circumstances, you would be protected.
- Changes in infrastructure - If your business relies on a specific location for its success, any change could have a negative impact on your custom.
- Operational risk - Internal risks like equipment failing to work can be a huge risk to success.
- Reputational risk - This means the impression that you give your customers. If your reputation is damaged, your business success could plummet.
Step 2 - Assess the risk
When the potential risks have been identified, you’ll then have to assess the likelihood of each risk occurring and think about the consequences if said risk was to happen.
It often helps to create a risk list and rate all the potential problems on a scale from one-10. One being not likely with minimal negative consequences and 10 being high risk with maximum negative consequences.
Step 3 - Evaluate the risk
The evaluating stage is where you make decisions on which risks need to be dealt with first and how you would protect against some of the more imminent risks. You can work out which potential problems can be treated with protection, like insurance.
Step 4 - Treat the risk
Treating the risk is about planning your future responses to the potential issues. It’s a good idea to go through your risk list and prioritise the issues you've identified as most damaging to your company.
When thinking about your responses, it’s a great idea to also come up with a contingency plan at the same time. Notify your team so they’re clear on what to do should any of these identified issues occur, it pays off to be prepared.
Step 5 - Review the risk
The final step of business risk managements is reviewing. This just means you go over all your plans and make sure that all your new prevention processes are tough enough to withstand any turbulence should any of the issues happen.
You should get into practice of monitoring your ‘Business Risk Register’ as this ensures you avoid any surprises and you’re protecting your business from financial turmoil.
By identifying the risks to your business and working on a foolproof plan to rely on if the problems ever were to arise, you can be confident you’re doing all you can to protect your business.
How can Bionic help?
Making sure you have the right business insurance in place is key to any risk management plan. But finding the right type and level of cover can be time consuming. And if the policy price is right, can you be sure you’re with a reputable insurer?
If you’re not sure about the best type of insurance for your business, the Bionic team can help. Give us a call on 0800 787 0687 and our experts will find a tailored insurance package to keep your business fully protected.