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6 Tips For Small Businesses to Improve Their Risk Management
Every entrepreneurial endeavour revolves around one commonality: Risk. Businesses are built on the prospect of success and the possibility of failure, determined by the way founders delegate, control, add and reduce risk, be it financial, operational, innovation-related or managerial risk.
You often hear about business owners pumping in millions of their own money for capital in a new venture as a way to launch things off the ground and put skin in the game or to expand their current businesses further. Risk is the life force of entrepreneurship. It’s inevitable and dangerous, but absolutely necessary at times. Risk management in small businesses is arguably more crucial, seeing that resources and leeway are both limited, and these entities often struggle to survive (especially in times of crisis). Here are a few tips to help Singapore business owners improve risk management:
- Minimize risk-related damages with insurance
Insurance is an integral part of enterprise risk management. There is a huge spectrum of insurance options that help to reduce specific risks and insurance is a must-have for any business that is serious about exponential or gradual growth in the long run. For starters, begin with a general liability insurance plan to protect your business in the event of property damage, third party injury, medical costs and legal expenses among other things.
Realizing that risks to smaller companies are part of running a business is the first step to manage and mitigate those risks. Insurance is the safeguard against catastrophic failures, once you have identified vulnerabilities in a business’s foundation. As a company owner, you are well placed to evaluate and analyze potential risks. You can then manage, monitor and review your strategy to address them from there. With this in place, you can help your business grow efficiently and in a safe manner.
- Don’t forget about motor insurance
There is also an overlap between personal and commercial coverage. When it comes specifically to businesses using their personal vehicles to deliver goods and services, things can get pretty tricky. It could be a matter of necessity for many. But it could cost greatly if a dilemma comes up.
Many people fail to understand that their personal motor insurance does not cover any situations where they use the vehicle for commercial purposes. This leaves them liable for any damage happening outside of personal use. Be sure to look at your motor insurance details (or any other insurance details for that matter), and read the fine print before signing up. Make sure insurance plans are in accordance with your business.
- Evaluate and weigh immediate risks
The process of proper risk management begins with weighing your options and assessing potential areas of high-risk. If you don't have a frame of reference, it is hard to determine what is an important matter and what can be dealt with later.
Refining your skills is important to identify real risk so you can manage it and save your business from any errors of judgement. Think about the implications of the risk at hand. To better formulate a plan of action that solves the problem and keeps consumers happy you can divide them into categories of low, moderate, and high risk. It's easier to comprehend what you need to do when you know how risk affects those around you.
It's also important to ask the right questions. Know for example how your business will be affected by changes in the economy. If inflation rose by two points, what might happen to a business in your industry? How has your line of business been performing under different economic conditions? If the business is a seasonal one, will patrons travel or spend less on business in times of crisis? The sooner you solve and prepare for these issues before they happen, the less exposed you are to avoidable risks.
- Focus on managing finances right from the start
Handling financial risks should be at the forefront in the mind of a new business owner. By establishing appropriate payment records and minimizing outstanding balance sheets, you can help reduce the risks of financial dilemmas tremendously. It is also important that credit risks are identified early on. One approach is to, as much as possible, avoid external financing and loans and instead focus on developing a great product. You should be able to fund your own business when you have a product that can sell itself and are making great sales throughout the business's lifespan. Things don't always go according to plan though, which is where business loans come in. There are plenty of financing options for companies that fall under the SME category in Singapore. Just be sure to keep a close eye on the accumulation of business debts.
- Develop a solid business plan
Create a comprehensive business plan, and take potential risks into account. Your business plan will assist you in shaping your business, identifying your financing needs, assessing your competition, and identifying marketing strategies. It allows you to foresee challenges and helps you make a plan for avoiding them, which is why it's such a valuable tool for managing your business.
Once you have started your business, the first step in effective risk management is to recognize the risks in all areas of the company — management, marketing, contracts, personnel, and the specific ramifications of your product or service on customers and the market. Business plans are extremely useful in this regard and identifying risks become much clearer when everything is laid out in front of you.
- Identify strategic risks in your market
The dynamic market movements represent a huge risk for all companies. Competitors may arise; offering competitive prices or newer services and products. New technologies can stir up and render out of date current technologies.
On the other hand, you may be forced by government policies to alter the way you run your business. Meticulous research and planning are needed to address these many strategic risks.
In order to combat these problems, select a team comprising individuals from various departments. Brainstorm the potential risks and ask what should they do to mitigate those risks. Regularly get back to the list, at least once a year. This helps you remain on course to manage risky situations in a dynamic market. Keep the list accurate and up-to-date as best as you can.
Some risks are avoidable, in which case you should do all you can to identify them and control them before they get out of hand. In other cases, risks are completely unavoidable, in which case you need to be prepared to pivot, adjust and adapt to the trying times. It’s your responsibility as a business owner to stay ahead of the curve and handle your risks before they turn into bigger problems.