If you’re an entrepreneur or a business owner, you might have dreamt of being your boss and making decisions. However, not everything is about intuition, and if you want your project to thrive, you must take many factors into account. One of them is business risk management.
Business risk management is a collection of strategies that allow a company to identify, prevent, and respond to events that jeopardize its commercial, productive, or internal operations.
Having a professional to assist us at this stage can make the difference between a successful business and an unsuccessful one. One of the most reliable options is Evans Sternau, a global network of committed CPAs and accountants that focuses on providing customer service strategies and resolving industry challenges.
Why Is It So Important To Have Someone Trustworthy At This Stage?
Risk management allows your business to endure for much longer, especially in the first years of operation. Keep in mind that 33% of companies don’t survive their first year, and up to 65% close before reaching 5 active years. That’s why it’s important to anticipate failure causes and be prepared to confront them.
Objectives Of Risk Management
Business risk management has different objectives. The main ones are:
Strengthen Responses To Risks
When creating a plan to manage risks, the goal is to identify sensitive points and determine how to respond to contingencies as effectively as possible. In this regard, the specialist in business risk management is responsible for creating the plan and finding mechanisms for your company to address risks, primarily in economic matters. Taxes are among these sensitive points. This a topic that often worries and confuses newcomers to starting a business due to its complexity. There are numerous firms dedicated to providing national tax advisory services, and if you’re trying to establish your company, it’s wise to seek advice from one of them.
Establish Optimal Risk Levels For The Company
When analyzing the risks you’ll face, it’s important to consider your company’s characteristics and financial structure. Through a preventive approach, you’ll know your limits, how much you can risk, and how these decisions will impact your company. For instance, if you’re a small or medium-sized company with low or moderate income, it’s not advisable to invest in a project that risks all your capital.
Improve Capital Allocation
Sometimes the money available for investment is limited, especially when you’re just starting. So, it’s important to improve the allocation of capital to key areas for your business’s growth. For companies with a larger budget, it helps avoid allocating resources to unnecessary areas. By identifying and allocating money better, you have more opportunities to invest in areas that foster your business’s growth.
Identify Multiple Risks And Reduce Losses
Sometimes minor aspects are the ones that most affect and hinder growth. Therefore, it’s vital to carefully analyze circumstances that you consider minor or irrelevant. This way, you can act more quickly in response to the effects of your business decisions and avoid destabilization.
Protect your company’s reputation
Protecting your brand’s or company’s reputation is essential. While one of your goals might be to expand your market or attract more clients, without clear business risk management and goals, you risk that poor operations, legal issues, or even political matters ruin the prestige you had. The consequences can include economic, financial, and reliability problems. But, despite having all these tools to try to avoid them, every company is exposed to risks, regardless of the type of business and industry it belongs to. That’s why it’s important to consider them when starting the company or making decisions.
Types Of Risks
Systematic:
Encompass risks present in economic systems or the company’s market.
Non-systematic:
Derived from financial management and the administration of each business, meaning they arise from organizational failures.
Financial:
generated due to financial management, meaning movements, transactions, and actions that influence finances. These movements include:
- Credits
- Interest rates
- Market
- Liquidity
- Exchange rates
Economic:
Associated with internal and external economic activity; such as losses due to poor decision-making or external events.
Environmental:
Present in hostile social or natural environments; such as violence, social insecurity, temperature, or geographic altitude.
Political:
Stemming from political circumstances that can affect the organization; such as government actions, changes in government, terrorist actions, and revolutions.
Legal:
Legal or regulatory obstacles that can hinder commercial and operational activities in a specific location; such as restrictive market laws, among others.
With all this information, you’re now ready to implement your business risk management plan and start generating processes that ensure your company’s success.
Now, get to work, and best of luck!
You must be logged in to post a comment.
Very Informative. Thank you for sharing.