Risky Business

Basic Economics defines profit as the reward for taking risk. So if you are in business, you are, by definition, in the Risk Management business. The key question is are you actively aware of, and managing the risks that you are taking? Do you even know what they are?

Why not take a 60 second challenge? Stop reading this, and go and get a piece of paper and a pen. Write down the top 5 risks that you are currently exposed to.

How hard was that? If you found it easy you are probably doing quite well. Because risk is such an every day phenomenon, most us take it for granted. Every time we step out of the front door we are beginning the process of taking calculated risks; just think about your drive to work. No really, think about your drive to work. What would be the implications of your having a crash, and having to be off work for a prolonged period?

You may have some sort of private health insurance to cover you against hospital bills. Are you also covered for loss of earnings whilst you are off work? More importantly, if you are running your own business, what about loss of profits? Can someone else keep the business going forward whilst your are off? We are all uniquely special, but if you have any one person who has the complete knowledge and control of one aspect of the business, and that know ledge exists only in their head, your business is at risk every time they get in the car!

Knowledge needs to be shared, recorded, backed-up and stored somewhere safe. What happens if you have a fire or a flood? Do you have vital records duplicated and stored off site? Could you survive the loss, crash or theft of your computer system? All of which, by the way, are common experiences. Most small business do not (have either proper back-up or survive such an event!).

If you are using the internet, (which 99% of businesses do) then you are exposed every day to viruses and worms. Do you have proper firewall and anti-virus protection in place? Do you update it regularly?

Failure to do so at the least risks wasting days reformatting systems. At worst, it could kill your business. What is your contact list worth to you? Data should be regularly backed-up and stored safely off-site.

There are all sorts of other risks that are lurking unseen. What is your cash flow like? One of the main causes of failure for small businesses is lack of cash flow. It is not uncommon for perfectly viable businesses to go bust because one big bill or customer wouldn’t or couldn’t pay on time. How much of your annual turnover is outstanding at any one time?

Stop for a moment, and do this simple sum to work it:-

Annual Turnover   = Monthly sales


Debts outstanding = Months outstanding

   Monthly sales

If it is more than 3 months, 25%+ of your turnover is at risk. What percentage of your total annual profit does this represent? If you are making less than 25% net profit (profit after paying all your overheads / bills), and most people are, then all of your years work is at risk!

What can you do about all this? The answer is sensible planning. With every risk you face you have the choice to Remove it, Accept it, Mitigate it, or Pass it on (this is what insurance does). The only choice you shouldn’t make is to ignore it!

The problem is that you are probably running risks that you are unaware of, so take time out to go through each aspect of your business (and whilst you’re about it, why not your life?) and consider the key risks and what your contingency plan is for each one.

It is never nice to consider these things, but much better to consider them, and thus avoid their consequences than to suffer them!

Good luck.

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