Deciding to be an independent entrepreneur or open up a small business can be an important decision in a person’s life. Even though each day is filled with new surprises and risks, small business owners typically want to understand what lies ahead and minimize activities that can put their profits and businesses in danger. A risk assessment management plan is a smart bet for any business owner.
Risk is defined as the probability of an event and its consequences. The United Kingdom-based business advisement site NIBusinessInfo reports the main types of risk for business owners to consider include strategic, compliance, financial and operational. Strategic risk has to do with competitors coming into the market. Compliance risk is how a business responds to new legislation or recommended practices. Financial concerns include repercussions of increased interest charges on a loan or a lower profit margin. Operational risk assessment involves key equipment and employee performance.
Even though it is possible to project certain risks, some of them, particularly external risk, may be out of business owners’ control. A changing economy, natural disasters, government regulations, changes in consumer demand and the arrival of competitors may be predictable, but business owners have no direct control over these factors. What they can control are the internal risks specific to their businesses, states the accounting and business record keeping software company Patriot Software.
Risk assessment first involves identifying and jotting down all potential risks, and considering how those risks can impact business. After risks are identified, it is then essential to put systems in place to deal with the consequences, as well as monitor and fine-tune the effectiveness of various risk-management approaches.
Risk management essentially gives business owners a proactive strategy to avoid pitfalls. So if a problem arises, business owners already have a plan in place to act immediately. In a worst-case scenario, fast action can stave off serious financial loss.
As off-shoots of disaster prevention, risk management assessments can improve decision-making skills of all involved parties. They also may help allocate capital and resources more efficiently.
Risk management is an important tool business owners can use to keep their companies functioning and profitable.