Risk and Reward: Why Risk Management is Essential for Any Serious Business
Every business owner knows the heavy burden of taking risks. Some entrepreneurs are more willing to take risks while others are more cautious. But, what if there were a way to pre-determine the potential outcomes of risk-taking. Well, there is—through risk management. Admittedly, it sounds like a strange term, but plenty of businesses are doing it and seeing their profits soar by not taking unqualified risks. There are even risk management courses that help train employees in how to manage risks for their business.
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Still on the fence? Here are some reasons risk management will be beneficial to your business:
Because your reputation is at risk.
Every product you sell or service you deliver – and the manner in which it is sold or delivered – says something about the character of your company. That story, good or bad, gets around and becomes your reputation. Competent risk management looks ahead to see how the company’s actions now can impact the company’s reputation in the future. Reputation is, of course, an intangible asset, but it’s the most important one that a business has. Negative media coverage, whether fair or not, can affect the business’s bottom line and it is the aim of risk management to foresee such events and avert them or minimize their impact.
Because your credit is at risk.
According to Chitra Nawbatt, “Credit risk is the risk of loss that occurs when a counter party does not make payment on the debt that they owe you.” For example, your company is put at risk when a customer or vendor does not pay you on time. Bad customers or unscrupulous business partners who do not pay what they right owe are not good for your business. A constant stream of negative balances will eventually deplete your bank account and hinder your ability to stay solvent.
Because the market is always a risk.
Your risk management team will spend a lot of its time studying the market that your business is in. By nature, the market is volatile. New competitors enter; old business partners change. Buyers hedge their shopping bets when they hear that the stock market has suffered a downturn. Seasonal changes play a role in when, where, and how potential customers are willing to buy. Risk management pushes you to identify external influences that affect your business and design a plan on how to address those forces that can either help or hinder your business.
Because your business operations carry inherent risk.
Sometimes a business is its own worst enemy. Inadequate or non-working internal processes, unprofessional workers, and inefficient systems all add up to operational risk. Fraud, bad employment practices, bad business practices, and other negativities can result in risk rapidly turning into reality. Many companies, unfortunately, overlook this element of risk in their management plans. But a robust risk management outlook turns its eyes inward and takes stock of weak links in the business’s current operations that can turn into serious liabilities down the road.
While some businesses are naturally at more risk than others – for example, a supermarket is less likely to go out of business than a store that sells music instruments – every business can benefit from some level of risk management.