One of the common mistakes I see new business owners making is not practicing effective Risk Management. This can range from starting a business with too little money or not purchasing liability insurance for their business.
Risk Management Definition: Decisions to accept exposure or reduce vulnerabilities by either mitigating the risks or applying cost effective controls
Business involves many risks. Risk Management is one of the most important tasks you have as a small business owner. Your business plan is a great place to put down in writing how you are going to deal with your risk.
Here are three ways to deal with risk:
Here are some things you can do to help you understand your risk:
Research similar businesses. Look at their locations, advertising, staff requirements, hours they’re open and their equipment. This preliminary analysis of your competition is a gold mine of important information.
Evaluate current market trends. What seemed like a hot idea over the past few months might have been a fad. Find last year’s phone book and call several new businesses. Are they still around? (If you live in a small community or want to expand your research, your local telephone company or local library may have phone books from other cities.)
Know your strengths and preferences. Is this type of business a good fit? Does it capitalize on your strengths? To compensate for areas that you have little or no expertise in, can you fill in the gaps either with staff members, partners, or consultants?
Examine your family budget. How big a financial cushion do you have, in case your financial projections show that you won’t be able to draw a paycheck for the first year? What other income can you reasonably expect while you’re in the start-up phase? It always helps if your spouse or partner has a full-time job with health-insurance coverage and other benefits through his or her employer. Remember that you’re not in this alone and realize that your family is there for you, to share the benefits as well as the risks. To ensure their support, make sure they understand exactly what you’re doing, and why.
Principles of risk management
The International Organization for Standardization (ISO) identifies the following principles of risk management:
Risk management should:
- create value – resources expended to mitigate risk should be less than the consequence of inaction
- be an integral part of organizational processes
- be part of decision making process
- explicitly address uncertainty and assumptions
- be systematic and structured process
- be based on the best available information
- be tailorable
- take human factors into account
- be transparent and inclusive
- be dynamic, iterative and responsive to change
- be capable of continual improvement and enhancement
- be continually or periodically re-assessed