Don’t let your business fall off a cliff—two areas of risk assessment SMEs should pay attention to

While charities and PLCs formally assess business risks, many owner-managed enterprises fail to follow suit.

One reason is that sole traders and partnerships don’t have external stakeholders who require risk assessment. Another is that SME owners believe that the only risk is financial.

They should think again. We provide two great examples of risks and how to deal with them below.

Get in touch for help

If you want to talk about Business Risk, call us on 0333 444 8522 or contact us at https://ukba.co.uk/

Reputational Risk

What happens when your product is faulty, or your service is less than perfect? The restaurant that gives poor service finds itself plastered all over Tripadvisor. The manufacturer that fails to deliver the urgent order or delivers the wrong order finds social media is full of the issue.

Customers on the receiving end of these problems don’t just complain directly now. They involve the whole world, so you need to know how to mitigate such risk.

Eight strategies to deploy

1. Proactive Reputation Monitoring – Regularly monitor social media, news outlets, review sites, and other relevant platforms to stay informed about what people are saying about your company. This allows you to address issues quickly before they escalate.
2. Build Strong Relationships – Foster positive relationships with customers, employees, suppliers, and the community. A strong network of supporters can help mitigate the impact of negative events.
3. Transparency and Open Communication – In times of crisis, provide timely updates and information to address concerns and maintain trust.
4. Crisis Management Plan – Develop a comprehensive plan outlining roles, responsibilities, and protocols for responding to different types of crises. Conduct regular drills and training exercises to ensure your team is prepared to handle unexpected situations.
5. Ethical Business Practices – Adhere to high standards in all aspects of your business operations. Unethical behaviour can quickly damage your reputation and erode trust among stakeholders.
6. Social Responsibility – Engage in corporate social responsibility initiatives that align with your values and resonate with your target audience. Demonstrating a commitment to social and environmental issues can enhance your reputation and attract customers.
7. Address Customer Feedback – Actively listen to customer feedback and address any concerns or complaints promptly and professionally. Resolving issues in a timely manner demonstrates your commitment to customer satisfaction and can prevent negative word-of-mouth.
8. Continuous Improvement – Regularly evaluate your reputation management strategies and make adjustments as needed. Reputational risk is dynamic, so it’s important to adapt to changing circumstances and trends.

Supply Chain Risk

Everyone is looking for flexible and competitive supply chains but on many occasions they are not found to be sufficiently robust and put the organisation at significant risk. The logistics of importing goods can prevent a number of risks but there are also political landscapes to consider in addition to raw material prices.

Seven steps to take

1. Supplier Evaluation and Selection – Conduct thorough assessments of potential suppliers to evaluate their financial stability, reliability, quality standards, and adherence to regulations. Choose suppliers with robust risk management practices and contingency plans in place.
2. Supplier Relationship Management – Foster strong relationships with key suppliers based on trust, collaboration, and open communication. Work closely with suppliers to identify and address potential risks proactively.
3. Risk Assessment and Mitigation – Conduct regular risk assessments to identify vulnerabilities and prioritise mitigation efforts. Develop contingency plans and alternative sourcing strategies to minimise the impact of potential disruptions.
4. Inventory Management – Maintain adequate inventory levels to buffer against supply chain disruptions. Implement just-in-time inventory practices cautiously to balance cost savings with the risk of stockouts during disruptions.
5. Contractual Agreements – Negotiate contracts with suppliers that include clear terms and conditions related to risk management, performance metrics, and dispute resolution mechanisms. Ensure contracts address contingencies such as force majeure events.
6. Insurance and Financial Protection – Consider purchasing insurance coverage or establishing financial reserves to mitigate the financial impact of supply chain disruptions. Evaluate options such as business interruption insurance, contingent business interruption insurance, and supply chain finance solutions.
7. Regulatory Compliance – Stay informed about regulatory requirements related to supply chain management, product safety, labour practices, and environmental sustainability. Compliance with regulations helps mitigate legal and reputational risks.

Summary

The point is that many of these risks interact within your business, and you need to be on top of them.

All businesses should be assessing risk on a continuous basis and even the smallest business needs to incorporate risk into its business model.

Remember, risk involves the whole business, and you should be reviewing risk from the bottom up. Even the most junior person has things about their job that concern them, and this concern may just be a risk to your business so involve the whole team in the assessment. Failure to do so will cost you money but it could cost you your entire business.

Get in touch for help

If you want to talk about Business Risk, call us on 0333 444 8522 or contact us at https://ukba.co.uk/

Elliot Harris | UK Business Advisors (ukba.co.uk)