Risk management 101 for small business owners
The tradeoff for the many satisfactions and rewards of running your own business is that you carry the consequences if things go wrong. This is why it’s important to have a risk management plan in place.
What is a risk management plan?
In a nutshell, it’s a collection of strategies that will help you reduce the negative effects on your business posed by common pain points for small business owners. Here are some of the common risks that face small business owners and what you can do about them.
RISK FACTOR: You’re overly reliant on a small number of clients or customers
Say you’re an antiques dealer and a small group of five or six customers, make up 65% of your revenue. You could be in big trouble if one or two of them suddenly goes elsewhere or goes out of business.
What to do:
- Invest time and energy in devising ways to seek out new, profitable customers. You can use Facebook to target specific audiences according to their financial status, geolocation etc.
- Try to lock your biggest customers into long-term contracts whenever possible like the owner of Truly Tea, Nyoli Scobie, who used a small business loan to increase her inventory and secure a large contract with the Sydney Opera House.
- Find ways to turn some of your smaller customers into bigger buyers. Perhaps offer them exclusive deals of bundle offers.
- Nurture both your big and small business relationships. Send personal emails to your customers with loyalty incentives. Always being on the lookout for new business even when times are good.
RISK FACTOR: You’re reliant on your current location
If your business is highly reliant on its current location for its customers and access to suppliers, you’re vulnerable if you suddenly need to move or there’s a disaster like a fire or flood.
What to do:
- Identify at least one alternative premises that would suit your business, staff and suppliers.
- If possible, secure a long-term lease or ‘right of first’ option when the current lease expires.
- Keep an eye on your business growth so you can project the need for a new office or a larger warehouse. Online loan providers like Prospa offer unsecured loans with fast approval times which will help accommodate fast expansion.
RISK FACTOR: Your Information Technology (IT) is underperforming or unreliable
Most businesses are heavily reliant on IT, be it your point-of-sale equipment working properly or software which enable your staff to do their job.
What to do:
- Make sure all software and hardware works as intended and is up-to-date. Hire an IT expert to conduct a review if necessary or use a small business loan to upgrade you IT equipment.
- Keep your data safe by making backups regularly and storing data off-site or using Cloud computing.
- Make sure your networks and servers are secure from outside risk of attack with these simple tips.
- Ensure that you have good IT support available in the event of an issue.
- Conduct regular IT training with staff.
RISK FACTOR: You’re having trouble finding or keeping staff
If particular staff are critical to the business, you’re also exposed should they leave and set themselves up as competition.
What to do:
- Improve your selection process to increase the likelihood of hiring the right people to begin with. You might need to ask them to complete a trial task or use a recruiter in some cases.
- Be sure to put confidentiality or reasonable restraint of trade agreements in place with business critical staff.
- Provide ongoing training for all staff. Staff that are underperforming currently may not in the future given nurturing.
- Seek feedback from staff about what will keep them happy in the business long-term. Is it more flexible schedules, better remuneration or more career development opportunities?
- Introduce profit sharing, bonuses or other incentives to retain key staff. Give them a bigger say in how the business is run so they feel more investment in your business.
RISK FACTOR: Your business is under threat from competitors
Are competitors posing a threat by opening nearby or offering significantly cheaper products or services? Perhaps online competition is affecting your bricks and mortar retail outlet?
What to do:
- Focus on creating strong relationships with your customers. If they love what you do for them, they’ll be loyal no matter what.
- Attend industry events and read industry papers to stay on top of trends. This means you’ll be able adapt your offering rapidly when need be.
- Seek feedback from customers about what products and services they like or dislike, so you can expand or change what you’re offering as needed.
- Make sure you are actively promoting those products or services that are selling or performing well.
- Benchmark your performance against industry averages so you know exactly where your growth areas are and where there’s room to improve.
Contact Prospa for more information about how an unsecured business loan can help your business grow.
With the Federal Budget promising tax deductions for small businesses that spend big on digital technology, we explore what the deductions could mean for you.View more
From tax breaks to wage subsidies to disaster funding, here are nine of the top take-outs for small businesses from the 2022-2023 Federal Budget.View more
Subscribe to the Prospa Blog
Be inspired! Sign up to Prospa’s newsletter to receive tips, tools and small business success stories straight to your inbox.