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Business Advice

How Risk Management Can Safeguard Growth?

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From market uncertainties to supply chain disruptions across all industries, today’s businesses must prepare for and manage various risks to stay afloat. 

Future-proofing is a form of strategic planning that considers the long-term well-being of something. It involves anticipating the future and developing methods to minimise the effects of shocks and stresses.

Risk management for business forms the basis of all business future-proofing endeavours. Preparing for worst-case scenarios enables a company to endure tough times, even during unexpected duress.

As a business owner, you should constantly assess risk areas in your business and ask yourself:

  • What are the risks that could affect my business? 
  • How likely are the chances to occur?
  • What would the consequences be if they did occur?

 

 

 

How to Future-Proof Your Business With Risk Management

Conduct a Risk Assessment

The first step in managing risk is identifying potential future threats your business may face. Conduct a risk assessment to identify and prioritise the risks that could impact your business performance and growth.

Utilising the Risk Matrix (pictured above) allows businesses to fully understand the effects and stress of certain circumstances on the bottom line. 

Start by brainstorming with your team, reviewing historical business data, and analysing market and business trends. Once you have a list of potential risks, assess how much of an impact any change will have on the company, from negligible to severe impact. 

For example, a data breach can be an ordinary risk in modern business. You can quickly mitigate this potential risk by implementing cyber security that an external IT provider manages. However, you should always ensure suitable bylaws and the status to transfer that risk.

Additionally, if a small retailer is concerned about the impact of customers shifting towards online shopping, it could be prioritised as a high-impact risk on sales and likely to occur in the near future. By analysing business performance metrics, the retailer can extend to an e-commerce platform and prioritise digital promotions of the best-selling products to generate increased turnover. 

Develop a Risk Management Plan

A risk management plan outlines how your business will manage the risks that have been identified. The plan should include strategies to mitigate, transfer, avoid, or accept the risks, depending on their likelihood and impact. The program should also include contingencies in case the risks materialise.

Clout Advisory Director Michael Brennan, a leading expert in insolvency, turnaround and restructuring, knows how a business may fail due to a lack of risk management. “You need to know that you have put appropriate mechanisms in place to mitigate these risks or transfer them so that whatever happens, you have a very clear picture as to what the risks to your business are, and if they come up, how you are going to deal with them,” Michael states.

As an example and a worst-case scenario, are processes and procedures documented if a family business’s managing director or founder passes away? Hence, can the “next in line” maintain consistent operations and fulfil the duties left by the deceased founder? Does the successor have access to all the login information of the business systems? These may seem simple and obvious elements of managing risks in a small business. Yet many companies still have no plan or documentation for risk management.

Monitor and Review Risks

Risk management is an ongoing process that requires regular monitoring and review. As the business environment and economy change, new risks emerge, or the likelihood and impact of existing risks change. Businesses should regularly review and update their risk management plan to ensure it remains effective.

If the previously mentioned retailer moves to a digital shopping experience, there would be a separate list of added risks that need to be identified, mitigated or transferred. With new strategies and opportunities come unknown risks that must be considered.

Tradie business owners can reduce the impact of supply shortages by reviewing business performance metrics. Understanding metrics like how long a job takes to complete, what resources are usually required, and what positions yield a better gross profit will help them take on the right jobs for the right price with the limited resources and supplies available.

The Importance of Risk Management in Business

Managing risk is essential for the survival and growth of small to medium businesses in challenging economic environments. 

By implementing risk management policies, a business can increase its resilience to the risks it faces and be better positioned for sustainable growth and success. The example of the small retailer shows how companies can take proactive steps to manage risks, maintain a robust financial position by diversifying revenue streams, and future-proof for challenging economic environments.

Future-proofing is more crucial than ever in today’s fast-changing business environment. Small businesses that can effectively manage risks will be better equipped to weather the challenges of rugged economic environments and emerge stronger on the other side.

If you want to learn more about future-proofing your business, our Coffs Harbour Business Advisors can help with a comprehensive and strategic risk management plan.

Contact us at coffs@cloutadvisory.com.au to start managing the risks your business could face and build a more resilient business.

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