The fact that you are a small-business owner designates you as an inherent risk taker. Now, this does not mean that you are careless or thoughtless in your dealings; it simply highlights the fact that running a small business comes with a high level of risk. Developing the capacity, through careful management, to mitigate the natural risks associated with owning a small business is essential to ensuring long-term success.
There are some simple, yet highly effective, practices through which you can substantially lower your business risks. Following are five of the most effective ways to mitigate risks in your business.
- Be Cash-conscious
Without question, the number risk associated with small business ownership is improper management of the business’s cash flow. It is important, as a business owner, that you calculate how much liquid cash is on hand, and how far it will reach if no other cash comes through, this will allow you to effectively prioritize and manage cash expenditures. It is also important to evaluate accounts receivable and accounts payable, because a slowdown in incoming cash, through receivables, will result in a slowdown in payouts to vendors — resulting in operational restrictions and vendors withhold services and products until accounts are settled.
- Insure Against Specific Risks
One thing that many businesses fail to do is insure themselves against apparent risks. In is not sufficient to purchase only standard insurance coverage. It is paramount that you are aware of specific risks that you have the option of insuring yourself against. There are a number of risks that many small business owners are completely unaware they are not covered for. While it is likely that you are covered for your inventory and business interruption, it is likely that your business interruption policy does not cover you if your web hosting company folds and your online revenue is shut down for weeks or months as you recover and rebuild your online presence. Taking the time to minimize these risks can literally save your business.
- Adjust Insurance Coverage as Your Business Evolves
With the evolution of new dynamic business models, it is likely that market indicators will demand some changes in the manner in which you do business as you move forward. When your business changes, it will be necessary that your insurance coverage changes in order to meet your need risk. The best way to manage this particular risk is by having regular meetings with your insurance agent to discuss changes in your business to determine if the changes dictate adjustments to your current coverage.
- Insure Your Key Performers
Insuring the performance of key personnel is essential, because certain roles in the company are an integral part of the overall performance of the company. In the case when an employee who holds one of these roles either leaves or cannot perform their duties, it can lead to a loss of your client base, and subsequently, your revenue. You should have key-person insurance on any person whose work is critical to the success of the company.
- Vender Screening and Credentialing
The quality of the service and products provided by third-party services is critical through the success of your business. It is amazing how many businesses fold because of mistakes that are made by vendors and contractors. By using a vendor credentialing service, you will be able to effectively qualify your vendors before using their services — reducing the risk of vendor failure.
While the global economy seems to be in a constant state of volatility, it has proven to be fertile ground for the launch of small businesses; however, many of these businesses fail within the first three to five years — primarily because business owners fail to effectively manage their risks. Following the aforementioned steps will go a long way in mitigating the inherent risks of running a small to mid-sized business.