**Check out our Calendar: Terrell Money Smart for Small Business educational series.  We’ll be talking about Risk Management on September 25th! 


Starting a small business is an exercise in risk-taking. To ensure success, a small business owner must make decisions that mitigate potential losses in order to avoid financial failure. This assessment of possible roadblocks that can prevent a company from achieving success is what risk management for small businesses is all about. While there is no crystal ball that can predict the future, there are measures that can and should be taken to avoid losses.


Two Main Areas for Risk Assessment:

Entrepreneurs should evaluate two main areas when making risk assessments for their business. These are primarily the forces from within the business and external forces that can harm the company.

  • Internal Forces: Examples of internal forces affecting a business can be employees and staffing issues, insurance or the lack thereof, even having the proper equipment to operate the company can be considered an internal risk factor.
  • External Forces: External issues that should be evaluated can be anything from economic factors like inflation, rent and the possibility of future increases if a lease situation exists, interest rates, even the competition needs to be assessed.

A business owner can do their own risk assessment as well as seek outside guidance from people with experience to help navigate the pitfalls.


Business Strategy Risks:

Develop a plan for the company to follow. Then, through trial and error, discover what works for the company and adjust for those strategies that are not working. Remember planning in advance can help mitigate future problems. Imagine you and your staff get into an old rowboat with a plan to get across a shark infested sea to a safe island. Before long you are ankle deep in water, no one packed life preservers and there are non-swimmers aboard. Do you turn back? Row faster? Try to plug the leak with limited resources or bail water and keep moving forward hoping you’ll make it across? The decisions you make at this point will sink or save you.

Making a risk assessment prior to getting into the rowboat would help prepare you with a contingency plan to make the trip successful. In this case, packing life preservers, buckets, a leak repair kit and proper staff with the strength to row fast if necessary.

If you are already in a dilemma, what do you do? Be resourceful and use your creativity, especially when it comes to making changes. Even getting in over your head can teach you how to better prepare for the future. After commandeering bubblegum from the staff, diving into the water to patch the leaky boat while everyone poked sharks with the oars, getting a better boat is likely one of six things you would do differently had you assessed the risks.


Financial risks:

The most consistent and major type of risk a business can face is financial. Most owners invest their own money, sometimes their life savings, in a business. They must find a balance between the cash flow needed to finance the operation, grow the business, and pay employees. While it may be nearly impossible to predict the future, especially when it comes to economics, decisions must be made that prepare you for difficult times. Be adaptable and trust your instincts and look to the past. Remember, hindsight teaches us how to prepare for the future. However, for a new business owner the lack of experience can leave them unprepared. The expertise of a mentor can be a resourceful way to minimize unknown financial risks not learned through experience.

Other areas to think about when it comes to implementing risk management in your business:

  • Marketplace and risks caused by the competition. Do your homework to discover what is happening outside your company that may limit your ability to grow and succeed against competitors. Follow trends in the marketplace and prepare to adapt if necessary.
  • Reputation and credibility risks. In today’s world online reviews of your company and the products you sell can have a big effect on your success. Monitor and be aware of these reviews as reputation can make or break a company. Respond appropriately and learn not to take it personally. A bad review can be an opportunity to make needed changes to risks coming from within the business. While not everyone is always right, you can make them feel they are right and possibly win back the customer. Be mindful as potential new customers also read reviews. Here is a chance to let them know you care about them and your reputation.
  • Business interruption risks. If anything, the pandemic taught small business owners how to adapt to a catastrophic interruption. Assess and prepare for all possible exterior interruptions such as natural disasters and geopolitical conflicts or a collapse in the supply chain. What will you do if your biggest supplier goes bankrupt?
  • Cyber threats and ransomware. If your business relies on the internet for commerce, keep up on the latest technology and online threat prevention.
  • Liability risks. If a customer or employee suffers an injury, are you insured? Most businesses will not survive the financial cost or loss of reputation a lawsuit can bring. Assess your insurance and determine if you are at risk.

To start implementing risk management in your business today, list all possible risks, external or internal. Then for each, list possible outcomes as follows.

  1. Worst case scenario
  2. Likely possible scenario
  3. Least likely scenario.

Use your intuition and experience to develop strategies for each situation that will minimize risks. Finally, think of a contingency plan for things not expected as not everything is entirely predictable.


For additional information on risk management and how to do a risk assessment of your small business, please contact us at the Trinity Valley Small Business Development Center – SBDC – TVCC – Serving Henderson, Anderson, Van Zandt, Rains, and Kaufman Counties.

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