Protecting your Small Business
Risk Management – Risks faced by Businesses
Businesses around the world are encountering a novel range of potential risks, especially due to the economic challenges faced because of COVID-19. This outbreak has revealed us to a number of new risks. As we encounter these new challenges in these uncertain times, it’s very important to understand the risks businesses face, so owners can be in a better position to tackle them.
What are the main risks small businesses face?
In order to protect your business against risks, it’s first imperative to understand more about the types of risks your business might face in this rapidly changing world. There are five primary types of risks your business can face.
- Strategic Risk- Every business has a long term strategy which drives their success. Strategic risk is when a business fails to adapt to the company’s strategy as it becomes less relevant and leads the business to struggle. The strategy may become obsolete due to any number of factors such as a shift in customer demand due to new competitors, outbreaks like COVID-19, increase in costs of raw materials or technological advancements. Failure to quickly adapt to strategic risk can lead to bankruptcy.
- Compliance Risk – Compliance risk relates to non-compliance with regulation. This can occur when an applicable law changes which your business doesn’t comply to. A business can also be subject to compliance risks if your business expands and is subject to additional regulations which aren’t adhered to. This can apply to your business if you expand geographically or even if you expand your product line. Failure to comply with the regulations can be potentially costly for your business. Our Accounting Services include everything a business requires to stay financially compliant.
- Financial Risk – Financial risk relates to the potential for a sudden financial loss in terms of money flowing into and out of your business. This could include having a huge proportion of your revenue linked to a single client, having too much debt for your business size, or expanding internationally. Failure to mitigate these risks will result in your business to become bankrupt as financial needs will be unmet. You can mitigate this risk by preparing an effective cash flow forecast.
- Operational Risk – Operational risk refers to an in-house unanticipated failure that affects the company’s core operations. This risk can be caused by anything from the company’s day-to-day operations, technical failure, internal processes, or by staff. Sometimes, operational risk can be caused by external factors as well, such as power failures, natural disaster or even from a web hosting issue. Failure to put safeguards for these risks will result in damage to your reputation or loss of revenue.
- Reputational Risk – Reputational risk refers that can damage the trust that your customers have in your business. This loss of trust can be a downward spiral, starting with negative publicity which leads to loss of customers, unhappy customers, bad reviews and so on. No matter how big or small your business is, business reputation is vital to your ongoing success. Reputational damage can lead to loss of revenue, loss of business partners, and staffing issues. The best small business accountants London provides will have a breadth of experience in assisting businesses with maintaining their reputation and will help you to think of strategies to help mitigate against these risks. A good marketing or branding agency can help manage reputational and branding risk.
Damage to the reputation of a business can have an impact on business profits, loss in revenue and a reduction in customers. There can be other implications such as a reduction in business goodwill, lawsuits due to non-performance or negative media coverage. These issues can create lasting damage to the brand’s image and to employees morale which can increase employee turnover or make it hard to hire good employees. Suppliers and Vendors might also take advantage of the situation to renegotiate terms more favourable for them, and sponsors or brand ambassadors might pull out. Some of the key reasons you may have a reputations issue can be due to bad products, misleading information, or major issues with services.
A key way to mitigate against risk is to consult with highly-skilled small business accountants, who can help you safeguard against risk factors your business might face, other measures include purchasing business insurance, using strategic tools to plan such as scenario planning and using effective risk management strategies.
Video: 10 Cyber-Security Tips To Protect Your Business Online
Watch the video to learn about the cyber-security measures to help you increase the resilience of your business.
With innumerable risks that your business can face, it’s vital to invest in the best business Accountants London has to offer, who have the necessary expertise to guide you through this perilous maze. They can help you find effective solutions to the potential risk your businesses faces.
Clear House Accountants are specialist Accountants in London, our team of accountants have worked hard to create smart solutions for business growth and risk management, speak to us to learn more on how we can help your business.