Have you considered recently which risks pose the highest impact on your business? Risks will vary according to the size of your business, the nature of your business and the markets you operate in.
There are many experts in the field of risk management and each will have their own opinion however, here we will highlight what we consider to be the greatest risks to your business and question what you are doing about it:-
Sounds obvious right? But do you have a monthly cashflow forecast and is it updated regularly?
Whilst the forecast will fluctuate according to business demands, at least you have an indication of ‘expected’ revenues and costs. I already have a cashflow forecast for 2023 and whilst it will undoubtedly change, I have my starting operational budget.
Create your cashflow forecast and review/update regularly.
Credit follows liquidity for obvious reasons.
You have a cashflow forecast and can see several months ahead that one or two months in the year are potentially going to be negative.
Can you cover the shortfall from your overdraft or other sources?
Planning ahead to ensure you have suitable lines of credit available should the need arise could save embarrassment when suppliers are chasing payment or worse, you cannot pay your employees that month.
- Employees (job role and duties)
Does your business rely heavily on a small number of key people or even just one person?
What would happen or what would you do if they suddenly left or an illness limited their capability?
Create your succession plan and contingency plan, hopefully you will never need the contingency but you’re ready if you do.
- Employees (training)
Do you have documented evidence of employee training and skills?
Are limits or controls placed on employees in the decision making process?
Does an employee ever feel pressured to make a decision without sufficient knowledge or training. What if that employee overpromises on what cannot be delivered.
In its mildest form, it could be an explanation and apology to the customer however, if it resulted in an accident or injury then the consequences could be very severe.
Ensure you have a training plan and keep it updated.
- Employees (trust and dishonesty)
We don’t like to think about this as we have fantastic employees and we’re a great team.
Unfortunately, sometimes even the least likely person commits fraud. We don’t know why and we will never understand, but it happens.
Whether you believe an employee would ever be capable of fraud, by implementing controls and procedures to ensure fraud cannot be committed then you should never have doubts or need to accuse anyone.
Ensure your controls and procedures are realistic, fully implemented, followed and reviewed.
- Credit control
You received the order, delivered the goods and raised the invoice – great!
Payment at point of sale is good however, it is likely that you will have at least some customers with credit terms. Do you have a standard procedure to ensure timely payment?
Where customers delay making payments, this could have a significant impact on your liquidity. You still have staff to pay and they cannot wait until the customers make payment, you need to make the shortfall either from savings or your credit source.
Ensure you have a procedure for chasing debtors and then ask yourself if the chasing is worth the business (or should you gift the hassle to your competitor)
- Supply chain management
You cannot generate revenue from a product you cannot obtain or a service you cannot deliver.
What is your top selling product or service (value or margin) and do you have an alternative or substitute you can offer?
Do you source raw materials from a single supplier or multiple sources?
Do you source material or products from overseas and what impact does a 5% currency movement have?
How do you ensure business continuity of your key materials or products?
Know your supply chain and understand the implications they could have in your business. Have a contingency plan for emergencies.
- Customer reliance
Do you rely heavily on one customer for your sales or your profits?
Typically many businesses operate in line with Pareto’s 80/20 rule whereby 80% of sales are generated through 20% of the customers.
Could you survive if you lost one or two of your top customers?
With greater emphasis on your top 20% of customers, a 5% increase in your top customers will far outweigh even 40% growth in your bottom 20%.
Define your sales strategy to maximise your potential.
Your reputation is everything to your business and a few poor reviews or bad publicity can have a significant impact on your business.
Poor employee support and mental awareness could damage your reputation or corporate social responsibility (CSR) or environmental, social and governance (ESG). Reputation is not only affected by the product or service you offer, how your business operates is equally important.
Ensure all employees share the same business goals and expectations.
- Cyber security
It only takes one click and your entire business is compromised.
Except it’s not just your business; how much customer confidential data do you hold too?
The weakest link in any computer system is the operator. Continuous awareness training of how cyber criminals operate together with do’s and don’ts will help minimise the risk.
Ensure rigorous policies are in place with planned preventative measures including employee training.
The top 10 risks noted above offer a silo perspective considering each risk singularly. These risks should be considered within a holistic approach of the complete business; Enterprise Risk Management (ERM).
ERM is a system to; design, implement, monitor, review and continually improve risk management throughout the organisation in accordance with the strategy and objectives set by the owners and or board of directors.
- Are your management systems robust, suitable and sufficient?
- Are you focused on your risks?
- Would you like reassurance or an outsiders view of your systems?
- Are you ready to grow your business?
- Is your business ready to grow?