Charities and PLCs have long been aware of the need to assess risk but there is little sign of Owner Managed Businesses following suit. The reason is that the first two have the need to assess risk enshrined in recommended practice (although judging by recent reports in the Charity Sector they are not doing enough in this area), but private companies, sole traders and partnerships have no such guidance and yet are they not equally exposed to risk?
Consider any business: they all recognise the financial risks involved with running a business (although the number of business failures suggests that even this basic risk is not being properly assessed) but what about other risks?
Let’s just look at a few examples.
1) Consider reputational risk– What happens when your product is faulty, or your service is less than perfect? The restaurant that gives lousy service finds itself plastered all over Trip Advisor; the manufacturing company that fails to deliver the urgent order or delivers the wrong order and all of a sudden Twitter and Facebook are full of the issue. Oh yes companies and individuals on the receiving end of such problems don’t just complain directly now; they involve the whole world, so you need to know how you mitigate such risk. How robust is your complaints procedure?
2) Consider environmental risk- I’m not talking acid rain here but for example, consider your location if you are a retailer. Are you in an up-and-coming area or are the surrounding shops becoming vacant or turning into charity shops? Is there less footfall because more business is being done online and you are not reacting to it?
3) Consider operational risk- How robust is your supply chain? If you are importing goods how reliable are your deliveries? Do political crises impact this? What about certainty on raw material prices? Have you got robust staffing procedures? Do you review your employment terms regularly to see if they are still relevant? How can you replace the skills of older staff when they come up to retirement, particularly in some of the more traditional industries? Is your IT backup reliable AND timely?
The point is that many of these risks and others like strategic risk all interact within your business and you need to be on top of them. ALL businesses should be assessing risk continuously and even the smallest business needs to incorporate risk into its business model. Yes, the smaller the business perhaps the less formal it needs to be whereas the larger the entity the more you need to have a formal risk register. Remember though, 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.
The Pandemic blew most Risk Registers out of the water and made us rethink both the risks we are exposed to and also our attitudes to risk.
FAILURE TO ASSESS RISK PROPERLY WILL COST YOU MONEY
So, if you want to talk about Business Risk and how to mitigate it, contact us today.