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Small business risk management
Risk management is a relatively new term
in general business. The ancient tools
used for risk management include good
consumer value, common sense as well as
personal integrity. All these concepts
are applicable to the different facets
of assessing the risks involved in
business and then mitigating it. The
most commonly used ancient tool is
common sense. This simply means
utilising the common sense to pay
attention to obvious circumstances and
by using the knowledge and experience,
making sound judgements and wise
decisions. Most of the businesses,
especially medium and small businesses,
have minimal knowledge and experience to
start with.
There are a few indicators which need to
be caught by businesses. These will help
in raising awareness on risk.
Quick and simple financial indicators:
-
Cast flow – Usually, the business
health has been looked in factors such
as amortisation and depreciation, taxes,
earnings before the interest. Though
this is a good indicator of the business
health, the best indicator is cash flow.
-
Accounts receivable – Factors
such as how much cast is outstanding,
for how long and by when.
-
COGS or Cost of Goods Sold – If a
trader fails to know the cost of the
service or product, and then it will be
difficult to understand the margins.
This implies that the trader could face
cash flow nuisances. Moreover, an
employee’s performance should also be
considered as this relates to the
efficiency in the output of the service
or product.
-
Expenses – It is necessary to
know all details of the incurred
expenses apart from COGS. One should
keep in mind that extraneous expenses
also have an impact of cash flow.
Quick and simple external indicators
-
Consumer satisfaction – A trader
has to know what the consumers think
about their services of products.
-
Market and competition – One has
to know well about the market as well as
their competitors. It is also necessary
to review the SWOT analysis at a regular
basis.
-
Access to funds – a trader needs
to take out time about the happenings in
the bank and the relationship with the
bank. It is vital to find out how new
ideas are being funded.
The existence of risk in a business
cannot be eliminated. It is important
for businesses to evaluate the
happenings, understand the risks
associated with their business in order
to make sound decisions and improve
business revenues and operation. By
investing the required time to have a
good look at the important external as
well as internal indicators will help in
accessing details. Also, it aids in
constructing a bigger picture for making
good judgements and decisions. In the
case of complex businesses where the
costs are justifiable, then appropriate
software tools prove to be useful.
Hence, the most essential aspects with
respect to management of risk are –
knowledge: knowing the business well;
experience – trusting personal
experience as well as the experience of
the board of directors or advisory
board, and finally making sound
judgements. Above all, use common sense,
the good old business tool. |
