Starting your own business is full of exciting opportunities, but it also brings a certain level of risk. Entrepreneurship is a risky game, and it’s essential to manage those risks if you want your business to succeed. Whether you’re a seasoned entrepreneur or just starting out, understanding how to manage risk is crucial.
Prioritize
The first step in creating a risk management plan should always be to prioritize risks and threats. You can do so by using a somewhat universal scale based on each risk’s likelihood of happening:
Very likely to occur
Some chance of occurrence
Small chance of occurrence
Very little chance of occurrence
A risk that falls into the top category should take priority over the others, and a plan to prevent, or at least mitigate, these risks should be put into place.
Buy Insurance
Assess liabilities and legal regulations to determine what types of insurance will be required for your business. Buying insurance allows you to transfer your risk to insurance companies for a small cost, especially when compared to the potential cost of uncovered risk.
Limit Liability
If you’re a sole proprietor, limit your liability by changing to a corporation or limited liability company (LLC). In this type of structure, the owner of the business is not held personally liable for the company’s debts or other liabilities.
Limit High-Risk Customers
If you’re just getting started, immediately implement a rule that
customers with poor credit must pay ahead of time, which will avoid complications down the road. In order to do this, you must have a procedure to identify poor credit risks far in advance.
Control Growth
This has everything to do with employee training. If you’re selling products and/or services and you set lofty goals for employees, they might be tempted to take unnecessary risks, which can lead to a bad reputation for your company. Instead, train your employees to focus on quality, not quantity. By doing so, you will avoid the risk of declining sales due to high-pressure sales tactics that customers don’t appreciate.
Appoint a Risk Management Team
If you want to save capital by not having to hire an outside firm, and there is time available, you can appoint current employees to head a risk management team. However, this would only be wise if someone within the team has experience in this area and can act as a leader.
Otherwise, paying for an utside risk management team will be a worthwhile investment.