10 Ways to Reduce Risk in Your Business
Business| By Jonathan Crossfield | November 05, 2020
No matter whether your business is big or small, risk management is essential, and affects the chance of success. Find out how to reduce risk in your business.
For a business to grow, particularly in these tricky times, there needs to be an effective balance between opportunity and risk. Each new product, expansion, strategy or employee introduces unknowns, which is why risk management is essential.
The process of identifying risk upfront can help protect your business in the case of financial uncertainty, accidents, IT threats and other potential liabilities. There are a number of types of business risk, here’s how to reduce risk in your business and minimise potential issues, before they arise.
How to Reduce Financial Risk
Every business is a game of profit and loss, which is fine when the losses are planned and the profits protected. Identifying and mitigating the various financial risks can help keep your business afloat.
1. Review Your Insurance Coverage
According to QBE’s SMEs and Insurance Report, 87% of Australian small business owners say a single business liability claim could shut them down, yet 62% of SMEs believe they are underinsured. Insurance is often about covering financial losses, such as a liability claim or replacing equipment, but it can also cover business continuity if you are sick or injured.
Be aware, though, that insurance hasn’t been able to help many businesses with continuity costs during the COVID shutdown; instead plenty have offered assistance in the way of deferred or reduced premiums. Talk to your insurance broker or insurance company to check your coverage is enough to protect your business should the worst happen.
2. Monitor Credit Threats
It’s not just your own financial wellbeing you need to be mindful of; it’s the financial wellbeing of your suppliers and clients, too. If you have clients that pose a reasonable financial risk should they default, it’s wise to monitor their credit profiles to be notified of any changes to their circumstances that might ring a warning bell. Try a Credit Management Service that also includes tools and templates for debt collection.
3. Protect Your Cash Flow
Most businesses have some kind of credit line in place to pay bills if cash flow becomes an issue. For example, the Officeworks 30 Day Business Account allows you to purchase products using a line of credit and pay 30 days after the invoice is issued (check your business’s eligibility online). Sometimes it can be as simple as a business credit card, but interest rates can make that a risky option. If you do need a loan to cover you against a lean month or two, it’s best to talk to your bank or financial institution before you need it.
How to Reduce Cybersecurity Risk
Digital technology might enable businesses to achieve more but it also requires its own risk management strategy.
1. Back up Your Data
Whether you have an office fire, a stolen laptop or accidentally delete essential files, the continuity of your business could hinge on how quickly you can access and restore your data and documents from a backup. Offsite and cloud-based services mean you don’t risk losing your backups along with the original data. Some, like arcserve and IDrive, are specifically designed for smaller, less IT-capable businesses and can help reduce risk in businesses.
2. Prevent Cybersecurity threats
According to The Telstra Security Report 2019, 65% of organisations experienced a security breach resulting in a business interruption in the previous year. And Verizon reports over 80% of hacking incidents are linked to compromised or weak passwords. To make life simpler, employees often use the same easy-to-remember password in multiple places. If a hacker can figure out someone’s cat’s name, suddenly they have the key to a huge amount of their personal and business data!
An obvious way to reduce the risk is to improve password security. Ensure there is staff training on how to create a unique, strong password for each login which includes a mix of letters, characters and numbers. Ideally, this should be changed every few weeks. A secure password manager tool, such as LastPass or 1Password, can help your team store, access and update all of their passwords safely and easily.
3. Beware of Unauthorised Tech
According to a study of Fortune 1000 companies by IBM Security, one in three employees uses cloud software and apps not approved by their employers. Unauthorised devices connecting to your secure systems can also introduce technology risks and vulnerabilities.
A common business risk is that small businesses may rely on employees using their own devices (BYOD) as a cost saving or because they are working from home, which might not have the same security protocols as an office server, so there needs to be a balance. In discussion with your team, create a BYOD and software policy with clear and simple guidelines that will mean people won’t need to seek unapproved shortcuts.
How to Reduce HR Risks
In 2018-19, the Fair Work Ombudsman (FWO) resolved more than 29,000 HR disputes between employees and employers. Should a dispute end up in court, penalties can be severe for any employer found to be in breach of the Fair Work Act. In short, accurate record keeping and regulatory compliance are essential for any employer.
1. Improve the Hiring Process
How you recruit can make a difference to the quality of the candidates you eventually hire. Companies that invest time and effort to improve the recruitment experience for candidates report a 70% increase in the quality of hires. For businesses just starting out, a Hiring New Employees DIY kit, as well as the resources and advice found on the FWO website, can help you avoid mistakes when hiring and managing employees and any subsequent potential business interruption.
2. Implement Clear Policies
Good HR policies set clear expectations about how the business expects employees to perform their day to day duties – but it’s important to ensure your policies are compliant with the Fair Work Act. A smart management approach is to involve your employees when developing policies so they feel some ownership of the rules they’ll work under. Not sure where to begin? The Essential Workplace Policies pack contains five compliant business policies to get you started.
3. Improve Employee Retention
Another risk businesses face is high employee churn. Every time an employee leaves the business, a chunk of experience and internal knowledge goes with them. On top of the recruitment costs, it can take 1-2 years for a new employee to become as fully productive as the person they replace. The best way to deal with this type of risk and reduce turnover is to listen and act upon the common frustrations and hopes of your team. Make them feel your workplace is the best option for their goals.
Prepare for Future Risks
The future is an unknown country. A solid business plan today will likely be woefully inadequate five years from now. So plan well ahead but be ready to adapt to challenging changes. That has never been more true than in these COVID-19 times.
Update Your Business Plan
Review your business plan once a year and also look beyond the next 12 months to identify trends, needs, opportunities and risks in the years ahead. That way, you can adapt more gradually with incremental gains. Reassess your opportunities and risks, and adjust your financial, technical and HR strategies accordingly – such as hiring now the future skills your team will need to help bring that future about. If you’ve never written a business plan before, there are resources such as this Business Toolkit, which gives you online access to videos on relevant topics and templates as well as the ability to ask questions of experts for 12 months.
In business, risk is unavoidable. Every opportunity is also potentially a gamble; from stocking a new product in the hope customers will buy, to investing time and money wooing a potential client. As Peter L. Bernstein wrote in his book Against the Gods: The Remarkable Story of Risk, “Nothing ventured, nothing gained, but don’t put all your eggs in one basket”.
This is general information only and does not constitute financial or legal advice. Other requirements under the law apply. Seek professional financial and/or legal advice to determine the right outcomes for your business.