As previously shared, life is a risk. On the same tone, business, no matter how big or small, is also a risk. It involves a series of big and small decisions and business calls and external factors that can make or break the business, and the business owners.
0. Loss Risk
Probably the single most recognized risk by all businesses is the risk of a red bottom line. All businesses (I assume) are cognizant of this risk so I won’t dwell much on this. In fact, majority, if not all efforts, are actually meant to derive a positive bottom line eventually.
1. Operational Risk
May pertain to production errors, defective or substandard parts/supplies used that may cause a product recall later on or customer complaints and lawsuits, malfunction of equipment, system downtime, lack of inventory to meet scheduled demand, etc which may lead to financial losses. Businesses should ensure that back-ups and operational manuals are well in place, and that there are Plan Bs should there be unexpected operational disruptions.
2. Calamity Risk
Especially in our country. Fire, earthquake, typhoon, tsunami, flash floods, landslides, sink holes, drought, pests, etc which may disrupt operations or completely destroy business premises and property. For small businesses, this is a big deal. Insurance companies refer to them as acts of God, whether you agree is another story. Best we can do for these kinds of risks is have insurance coverages, back-up and calamity plans. Regular precautionary drills, which are often ignored, may actually prove helpful.
3. Security and Fraud Risk
Risk of loss due to theft, intentional deception, identity takeover, misrepresentation and other fraudulent activities. Endangered lives due to security breach, robbery in a branch or inside job theft carried out by certain personnel. CCTV may come into mind but this only addresses a small part of the risk. As they say, prevention is always better than cure. At the very least, security of the business premises must be ensured, not just secured against robbery and theft, but also against natural disasters. Insurance, when affordable is also a good investment. Likewise, measures should be in place to detect fraud which may range from fake monies to poser customers, identity theft, account takeover etc. Checks and balances should be in place. Knowing your customer plays a big part in minimizing security and fraud risk.
4. Information Risk
In business, certain information and data are intentionally kept hidden from the customers and competitors. Examples are product costing and pricing, trade secrets, soft copies of templates, contracts, manuals, recipes, big deals you are working on, customer information and all other confidential items. The risk of exposing these information to unintended viewers and audiences can pose a risk and a loss to the business. Ensure that these items are well safeguarded, sometimes even from the eyes of our own personnel. After all, these trade secrets are what makes our business unique and competitive, and these customer information were given to us by customers in trust that these shall be handled carefully. Failure to handle information properly can lead to financial and other further losses.
5. Credit and Default Risk
The risk of the business not meeting its financial obligations (payables), or on the other hand, poor collection of business receivables. Either way, cash flow management will be key to handling this risk. When left unchecked, this risk can easily shut down business operations due to poor circulation of its lifeblood: cash. This can lead to lawsuits and reputational risks as well.
6. Legal and Reputational Risk
Risk of getting lawsuits, court cases and tarnished reputation, negative public image, loss of customers and their confidence, in the course of running the business. Failure to secure the necessary permits and clearances, pay any government dues, unknowingly engaging in illegal or anomalous deals, customer complaints blown out of proportions, failure to deliver on agreed timelines, food poisoning, etc. At this age of word-on-web, it is so easy to spread rumors and negative feedback. Aside from bottom line, it is important to take care of one’s reputation, of the company’s branding since customers value branding highly. Most of the time, company branding and reputation are valued by customers even higher than product quality and affordability.
7. Concentration Risk
Especially true for small businesses is the fact that operations may only be centered and concentrated in one location, one subject matter expert (personnel), only one equipment, data and inventory is stored in only one place, only one supplier etc. Well for practical reasons and due to the fact that small businesses cannot always afford to put up back up locations, equipment or more personnel. Just the same such set-up breeds concentration risk and as you’ve anticipated, it can be dangerous for the business. What if something happens to the location, or the expert personnel leaves the business without proper turnover or documented procedures? Or goes on extended sick leave, incapable of working for days? What if the equipment malfunctions or the storage devices are suddenly uncooperative? These definitely disrupt our business operations which can have snowball effects on other risks. Documentation of procedures, back-up copies, contingency plans must be in place. Cross-posting, rotation and skills sharing, when possible, are also good practices. Similarly, business outings and traveling together can also pose concentration risks, especially when, knock on wood, something happens…
8. Labor/ Human Resource Risk
Small businesses may not have labor unions but that does not mean its personnel don’t have anything to say. This risk may pertain to both the safety of the personnel while working for your business (any occupational hazards, tied to operational risk), or the risk of your personnel engaging in work stoppage and mass strike due to unaddressed concerns and needs. Just like inventory which runs out or equipment which malfunctions, personnel and your manpower may also decide one day to walk-out on you. Lesson is, keep them happy and satisfied. After all, your people is your best business asset.
9. Political and Regulatory Risk
You may not feel this much in your business right now but this is actually a risk very much present. Imagine if your dealing with countries experiencing political crises, power struggles etc. Won’t you be concerned of your future dealings with them? Of default risk? Or what if other countries don’t want to deal with you because you are from the Philippines? Product quality becomes immaterial because you are already branded as from the Philippines. What if certain laws are passed prohibiting this and that, or allowing this and that such as higher tariffs, controlled interest rates and pricing, or revised government contracts? These changes may have an impact on your business, may it be on operations, your suppliers or customers, and the legal bounds within which you have to operate.
10. Economic and Market Risk
Probably one of the risks that is hard to mitigate and almost always out of control, the only thing we can do is sink or swim with it. Economic downturns, recessions are somewhat cyclical. They happen from time to time and given the globalized world, a recession in Europe or US can very much affect us here in Manila. Export businesses are usually the biggest victims, but note that these events also dampen consumer confidence, which then affects domestic spending. Again the best thing we can do is be prepared to swim, find other means to generate revenues, and see opportunities in these downturns.
Quite a number of risks I listed above and for sure, there are a lot more risks out there. Certainly you have already realized that these risks are very much intertwined, adding more complexity to the risks we face. Regardless of the size of your business, there are a lot more other things that you should be on the lookout for, aside from profitability, customer satisfaction and sustainability.
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