Small Business – Risky Business?




“A ship in harbour is safe – but that’s not what ships are built for.” —John A Shedd

Every entrepreneur knows that you have to take some risks when establishing and growing your business.  Staying safe is unlikely to be compatible with exploring new areas, developing new products or services, reaching out to new customers or markets, or many of the other tasks we have to address.

However, there ARE things we can do to protect our businesses, and to reduce the risks we run. This is called risk management – and is a high priority in most large corporates, where risk management has become a hot topic, with new risks emerging all the time, and ever more sophisticated techniques to identify, measure and manage every risk you can possibly imagine (and some you can’t!) 

The Institute of Risk Management (the leading UK body for risk management) says:

“The risk landscape and expectations on risk departments have changed beyond recognition over the past ten years. Rapid globalisation, spreading communication networks, and technological and demographic changes have added huge layers of complexity to the types of risk organisations face, and the speed at which those risks can arise.”

We adopt risk management strategies in many aspects of our everyday life. For example:

·      locking our house, cars, or bikes up

·      looking both ways when we cross the road

·      putting away dangerous or sharp objects when young children are around.

So it makes sense to think about risk management in our business too. It enables us to know the risks we are running, to reduce or remove some of them, and to make a rational decision on whether we can live with the risks that remain – or need to make changes to our business if we can’t.

Small businesses can take a simple, 3-step approach to risk management. It goes like this:



1. Identify the risks in your business

The easiest way to do this is to think about risk under four different headings:

·      Strategic risk - how we go about achieving our vision and objectives (e.g. your best customer or client disappearing overnight)

·      Financial - everything to do with money (e.g. not having enough cash to pay your bills)

·      Operations - everything to do with the day to day running of the business (e.g. your laptop crashing and losing all the data on it)

·      Hazard - outside our influence (e.g. a flood at the place where you work)

The best way to come up with a list of your risks is to brainstorm them with someone else – a business partner if you have one. Otherwise, buddy up with another entrepreneur and do it for each other.


2. Quantify the risks in your business

Now you need to assess how significant each risk is. Think about this in two ways:

·      How severe would the impact be if this risk happened, both in terms of money and your ability to carry on with business as usual?

·      How likely is it that this event will happen?

Rate each risk as high, medium or low for impact and, separately, for likelihood.

If the impact and / or likelihood is high – this is a risk you definitely need to control. If it’s low on impact and likelihood, you probably don’t need to worry about it at all. If it’s medium for either, you should address it, but only after you’ve dealt with all your risks in the ‘high’ category.


3. Control your risks

How can you reduce or eliminate the possibility of your ‘high’ risks happening?

One option to consider is insurance, so make sure that you do have appropriate insurance in place.

There may also be other simple steps you can take.

For example:

If your best client /customer disappearing would be catastrophic, how can you build your pipeline to get a better spread of clients?

If not having enough money to pay the bills is a significant risk, how can you reduce your expenses, or improve your cashflow, or manage your large payments better across the year?

If your laptop crashing would give you nightmares, are you backing up all the important documents regularly and storing them in the cloud or on an external drive kept elsewhere?

If a flood would be a calamity, why? Is it the loss of stock or the lack of accommodation that worries you? Do you need to move key supplies to somewhere safer (perhaps above ground level), or invest in a water resistant safe, or simply identify an alternative location where you could operate for a short time if you had to?

And finally – take action!

Doing an assessment of the risks in your business is a great start, but make sure you then actually take the actions you’ve identified to control those risks.