RUNNING an enterprise is a risk in itself.
Starting one in a crowded market or hinging your bets on the timing could mean you are flying too close to the sun. But successful entrepreneurs show they have a mindset that takes them where few would want to go.
As Facebook chief executive and co-founder Mark Zuckerberg says: “The biggest risk is not taking any risk … In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”
The famous entrepreneur Sir Richard Branson lists the social networking leader’s words among his top 10 quotes on risk.
“Taking risks is meant to feel scary, but overcoming this fear is your only ticket to experiencing new and exciting things,” Branson says in his blog.
Branson stresses the point that we should all learn to embrace risk rather than fear it. “It is one of our greatest learning tools,” he says.
(https://www.virgin.com/richard-branson/my-top-10-quotes-risk)
Clearly, Branson walks the walk and talks the talk. Today, his Virgin Group has more than 400 companies and in July 2015 Forbes estimated his net worth at US$5.2 billion.
Taking a risk to start an enterprise or take the business to a higher level is one thing.
But what about the unforseen risks that could hit a business – such as risks posed by suppliers or even technology?
How do you define risk in business?
So what actually constitutes risk in business?
The Western Australian Government’s small business website defines risk thus: “A risk can be defined as an event or circumstance that has a negative effect on your business, for example, the risk of having equipment or money stolen as a result of poor security procedures. Types of risk vary from business to business.”
Some risks may be critical to your success; however, exposing your business to the wrong types of risk may be harmful, the website says.
In reality, small to medium businesses are exposed to risks all the time. So, how would you go about identifying and managing risk?
Risk management is the process by which the entrepreneur identifies the risk, assesses it and goes about getting a strategy in place to manage it.
Have a plan in place
Businesses, whether big or small, should have a plan in place.
Business Victoria lists the following steps:
– Identify risks
– Minimise or eliminate risks
– Identify who has to do what should a disaster occur
– Determine and plan your recovery contingencies
– Communicate the plan to all the people it refers to
– Prepare a risk management plan
As with any problem, the first step is to identify it, analyse it and quantify the impact on the operations. It is only when the owner knows the issue can they assess the severity and how much disruption it may cause to the enterprise.
Managing the risk could mean a change in business procedure or equipment or material.
It would also depend on the business – the type of risk could differ with each specific business.
A risk management plan should be in place that lists the steps to take while dealing with a risk that affects the company.
Anticipation rather than reaction
One way of preparing could be a handy checklist of who does what in a situation – in other words, detail which person in the business operation tackles which part of the risk situation.
It would be a good practice to let those on the list know what their role is should a situation arise. A good way could be relevant training to help them familiarise themselves with the procedure.
So preparation of a plan should be in anticipation rather than a reaction to a disaster.
Once all steps are in place to deal with a risk situation, it would be a good idea to determine methods of recovery.
Again, the type of recovery will depend on the size and type of the particular business.
The importance of insurance
The significance of insurance to cover the business for unexpected happenings cannot be ignored. A business could be affected if the owner does not have the right insurance.
Insurance can cover building and contents, business interruption, public liability, to name but a few.
Without the appropriate insurance, the owner may be unable to trade or end up with large out- of-pocket expenses, which could result in the business having to close, the WA website says.
For more information on risk management, visit:
https://www.smallbusiness.wa.gov.au/business-topics/starting-a-business/insurance/risk-management/