Risk Management can help small businesses minimize and ideally prevent the impact of a crisis. Is your company ready when disasters strike? Let this blog post help you prepare for a possible emergency before they even happen.
When you’re running a business, you may face different risks. Natural disasters, economic slowdown, disease outbreak, theft, PR disasters, and cyber-attacks can cripple your operations. These unplanned events can cost your business money and effort to restore.
The effective way to protect your business, employees and customers are to anticipate the possibility of a crisis and develop a risk management plan. This ensures that everyone on your team understands what to do before, during and after disasters occur.
What is Risk Management?
Risk management is a process of identifying, assessing, and reducing the harm or damage brought by potential risks before they happen. It helps business owners to create strategies to prevent, lessen or control the impact of these risks.
Risks can come from different places. It can be a global financial crisis, accidents at work, natural calamities, disease outbreaks, and others. By having a risk management plan, businesses and non-profit organizations can save money, retain trust and sustain the future of their operations.
Creating risk management tactics shouldn’t be costly and time-consuming. It includes essential factors such as:
- Policies and processes that outline what the staff needs to do
- Cooperation and commitment from all departments
- The role and responsibilities of each staff
- Tools and resources to facilitate the crisis plan
- Ongoing improvement of the plan through monitoring, testing, and training
Why is Risk Management Important?
Here are the reasons why you need to manage risks for your company:
- A risk management plan allows organizations to define their objectives and prepare even before these threats happen.
- It gives organizations the ability to control these risks and stay positive about their business decisions.
- Risk management protects the company from unexpected events that may harm the company, employees, customers and the environment.
- It strengthens the stability of the business operations while reducing the possibilities of litigation.
6 Common Small Business Risks
What’s different about small businesses is that they don’t have vast resources that big enterprises have. However, small businesses still face the same risks as their huge competitors.
This makes them even more vulnerable. Hence, they need to use prudent risk mitigation strategies. Here are the six common risks that small businesses face.
Strategic Risk
The dynamic movements in the market is a huge risk for all businesses. Competitors may emerge; offering competitive prices or products and services. New technologies can shake up current technologies and render them obsolete.
Government policies may compel you to shift the way you operate your business. To address these strategic risks, careful research and planning are necessary.
Choose people from different departments. Brainstorm the possible risks and ask what they should do to mitigate these risks. Come back to the list regularly, at least once a year. This helps you to stay on track and keep the list up-to-date and accurate.
Economic Risks
Again, the economy changes frequently as market movements fluctuate. Positive movements are great for the economy while negative changes can impact your company growth. Keep in mind, that a severe recession can affect even the biggest corporations. More so, if you are a small business.
It’s best to monitor these trends, identify and plan for a possible economic downturn. Operate on a modest budget with minimal overhead costs. Avoid unnecessary expenses and maintain stable cash flow.
Financial Risks
Financial risks are among the biggest risks small businesses deal with. Oftentimes, business owners use their life savings or take out loans to get their business running. This puts a huge pressure on them to recoup their investments.
In the beginning, cash flow will be a huge concern in the early phases of the business. Make sure that you have enough money to pay for employees, sustain operations, and investments for market growth.
Location Risks
Depending on your location, your business may be at risk of fires, theft and robberies and natural disasters such as storms, floods, tornadoes, and earthquakes. Familiarize the ins and outs of the neighborhood.
You can buy a property or casualty insurance to pass the financial burden caused by natural calamities to your insurance provider.
Security Risks
Today, more customers prefer to use online and mobile platforms to perform business transactions. Their personal data are prone to threats of data breaches, spamming, payment frauds, and identity theft from cybercriminals.
This type of risk will not only affect trust and reputation for your company, but this may have legal repercussions, as well. Effective security solutions can include educating employees and customers on the detection and prevention of potential online threats. And installing security programs or tools.
Reputation Risk
While the damages brought by reputation risks are grave, they are often overlooked. A company’s reputation is also an important asset.
Nowadays, almost everyone is on social media. It’s easier for customers to share their dissatisfactions about products or services they receive. This is why businesses should create a positive reputation as part of their risk management strategy.
Encourage customers to share feedback—good or bad. Show your appreciation and kindness with your response. To check what people are talking about your company, monitor online conversations and participate in online communities.
Additionally, you should enforce a social media policy. This defines how employees should engage with customers, the language and tone to use, how they represent the company even on their social profiles.
How can small businesses prepare for a possible crisis?
A well-thought-out risk management plan will help you cope with any potential crisis. It minimizes interruptions to your operations. Here are steps you can follow to limit business risks and get your business back on track quickly.
Consider possible threats that your business are likely to run into
List down all potential risks that you may have to deal with. These risks may vary depending on your size, scope, what products or services you sell and the customers you transact with.
Conduct a risk assessment analysis to identify hazards, both within or outside of your business. Evaluate how these risks can impact your employees’ safety and health, and your ability to conduct business.
Create a comprehensive plan
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For emergencies like a fire in the building, do you have a plan on how to safely evacuate your employees? Do you have a first aid kit ready to treat minor injuries at work?
Planning an overall crisis response can overwhelm business owners. But, you don’t have to do it on your own. You can brainstorm with your team to create a process when responding to an emergency.
Write the details down and include all key contacts and their responsibilities. Keep all digital login information intact and within access.
Documenting them will give you an idea of how much to budget for possible repairs or replacements or if you need to run your business from another location. Is your business ready to work remotely? Can your employees work from their homes when the situation calls for it? These are some questions to consider when creating a plan with your team.
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Test the effectiveness of your risk management plan
If you’re done creating a plan, it’s time to test how it will perform during an emergency. While simulating a natural disaster is complicated, you can gauge your crisis plan against possible scenarios through a written exam.
Try calling your key contacts to check if the contact information they provided is accurate and up-to-date. These are some of the ways you can test your plan.
Reduce Risk Factors
You can’t predict when a crisis strikes but you can take proactive steps to control some risks. If your small business is located in a crime-prone area, it’s best to install security measures to eliminate possible harm or damage to your property and employees.
You may want to invest in high-end locks, security doors, security cameras or alarms that you can control on your smartphone. Consider all the steps you can take to minimize crime within and outside of your business premises that can give you peace of mind and security for your company.
Focus on recovery
Understanding how to prepare for a disaster is important. But it’s also critical that everyone knows how to rebuild the company after a crisis. Coordinate with HR on ways you can assist members when they experience emergency trauma.
Mitigating Risks While Increasing Business Efficiencies
While it’s impossible to eliminate all risks, it helps to prepare for the worst. Disasters can happen to anyone at any time. Some small businesses may never get back after a crisis. The good news is, you don’t have to be a victim. You can do something about it.
The key here is to have awareness and preparation for possible emergencies. By having a risk management plan, your company stays informed and proactive on what to do when disasters happen. Continue to test and improve your plan as needed.
Yes, the future is filled with uncertainties. But don’t let that scare you from growing your business. Managing startup risks can be complex at times but it can be done.
If part of your emergency plan is to allow your employees to work remotely, maybe we can help. Here at Full Scale, we make it easy and affordable for startups to build their software development team. Our software experts can help you build your digital assets from the ground up.
They work full-time in the office but we give them the ability to work remotely in their homes when critical situations arise. Check out this blog post from our CEO, Matt DeCoursey on how Full Scale prepared for the COVID-19 pandemic. To get started, get your FREE consultation on how we mobilize our clients’ offshore business even amid any disasters, big or small.
