Every business owner understands that the rewards of running their own company are immeasurable, but the tradeoff is that you also bear the brunt of the consequences if things go wrong. This is why it’s important to have a risk management plan in place. Having a strategy for the common pain points that your business may encounter will reduce the impact should anything go wrong.
Below are some of the more common risk factors that small business owners face, and how best to prepare for them.
You’re overly reliant on a small number of clients or customers
If your company is niche, it’s natural your pool of customers will be quite small. So if you lose one of them, this impacts greatly on revenue. You can decrease the risk by taking the following actions:
- Build a pipeline – continually seek out new and profitable customers. Facebook is ideal for targeting specific audiences. Do this regularly, even when profits are at their peak, so you are prepared for any unexpected surprises.
- Get more formal – know who your biggest customers are and see if you can lock them into long term contracts. Sometimes this requires an increase in your product offering, so think about investing in growth.
- Upsell and cross-sell – transform your smaller customers into bigger ones by offering extra services or incentives like exclusive deals or bundle offers.
Your business is under threat from competitors
Competition is not always negative – it can lead you to create the best version of your product/service. However, there are threats from competitors that are tricky to overcome, for example if they offer significantly lower rates for what seems like a similar service. You can mitigate the risk of ongoing competition by taking the following measures:
- Build strong customer relationships that will lead to long-term loyalty. Build on this by asking for honest feedback about what you can do better, and then acting on it.
- Understand your industry – attend relevant events and read related publications so that you are at the cutting edge of your field. Knowing your sector will also allow you to benchmark your performance against industry averages, so you know where to improve, and where you excel.
- Actively promote the products or services that are already performing well, and see how you can apply elements of their success to other aspects of your business.
Your company’s technology is not up to scratch
Technology is central to any business, and it can accelerate company growth and performance. With so many companies heavily reliant on IT infrastructure, it’s important to take steps to reduce the risk of any technical difficulties:
- Software and hardware should all be as up-to-date as possible: you can hire an expert to conduct a review if this is not your area of expertise! Your team will operate better with the right tools, so consider investing in new tech if you’re running on old or outdated equipment.
- Ensure all your data is backed up and stored off-site or in the cloud.
- Ensure your networks and servers are not at risk from an outside attack – customer trust is integral to any business, and cyber security should be a consideration no matter how small your business.
You’re having trouble maintaining your cashflow
For your business to maintain a risk management plan, you will require a baseline level of liquidity. You can meet your short-term debt obligations through the following techniques:
- Cash flow is one of the biggest stress points for small business owners. Stay on top of unpaid invoices, see where you can cut back on expenses and ensure your suppliers are offering the best deal possible.
- Are all your assets necessary? Eliminate any unproductive assets in your business: if they are not generating revenue, they aren’t contributing to the liquidity of your company.
- If you find yourself in a position where your liquidity cannot cover short term debt, look into a short-term business loan.
About the author
Rebecca James is the Chief Marketing & Enterprise Officer at online small business lender Prospa.