Does Your Business Plan Include Risk Management?

Putting together a business plan usually starts with a focus on an action plan that will lead to a successful business operation. How to achieve success is naturally what any new business owner should focus on but what about unplanned occurrences detrimental to the business? Catastrophe is not something we assume will happen but a plan for it is still needed.

risk management

It is the reality of every small business that there does lurk factors or occurrences that can indeed disrupt or destroy all your previous plans for success.

Included in the planning stages of every small business should be any risk assessment associated with your particular circumstances, market, or niche. As foreboding as this may seem this assessment simply enables you to identify many ‘potential’ risks to your business. The purpose of this is so that you can create a risk management plan to minimize, manage or prevent unfavourable events in a rational manner.

Employee turnover, changes in industry regulations, theft, natural disasters, consumer demand, and cash flow problems are just some examples of potential risks. The existence of these risks you can’t change. You can however form contingency plans to address any changes hurting business.

Put together correctly, a risk management plan can safeguard and benefit your business, especially during the planning stages.

 

Below are 3 reasons why you should have a risk management plan for your business:

Creates Greater Market Awareness

Through researching and examining any potential risks to your business you should gain a greater understanding of the market itself. The knowledge and insight you gain through this research can only serve as an asset. This knowledge will come in handy when putting together your marketing strategy or simply sizing up the competition.

There is no such thing as having TOO much knowledge of your market or niche. As in most cases, KNOWLEDGE IS KING!

Plans for Preventative Measures

If identified beforehand, some but not all problems can be avoided or neutralized; therefore, they never become an issue. It is findings such as these that allow you to put into place plans to avoid them. Left undetected and therefore unaddressed these same problems could cause immeasurable damage.

To prevent and reduce risks, you should evaluate your current control activities and amend them if necessary. For example, you may want to:
• set aside financial reserves to ease cashflow problems if they occur
• use physical control over assets, eg locks
• put in place data backup and IT support to deal with potential systems failures
• screen and train employees before you allow them access to critical systems
• limit the number of employees with access to critical or sensitive data
• segregate certain types of duties to different employees, eg financial decisions
• introduce pre-approval of actions and transactions
• carry out internal audits, inventory counts, etc
• review organisational performance regularly

Plans for Damage Control

Some risks even after being identified as potentially harmful can’t always be avoided. These same risks offer the potential for significant damage if they do occur. Usually, research indicates their existence but also indicates a small probability of an actual occurrence.

The focus here is not so much to avoid or prevent these types of threats since that can’t be done. Usually, you have little control over their occurrence.

Risks such as these require plans that will minimize the damage. The key is to recognize them early enough to implement any plan aimed at discontinuing further damage. Left unchecked long enough some of these risks can destroy a business. You intend to simply stop further damage and quickly. Having an action plan already in place will allow you to do that.

 

Hopefully, you realize that every business plan should include measures that target identifying and managing risks that could damage your business. Every entrepreneur hopes that they will not be susceptible to events that could destroy their business. To achieve success, you must plan for it, and in doing so attention must be paid to potential problems that could dash your dreams. A little preplanning beforehand can save you a lot of heartache and money down the road.

Our CBP™ Business Management program is aimed at those who aspire to excellence in management. It provides vital information and skills necessary to prosper professionally in management.