Risk has been given to every business and can cause damage to an enterprise, and even threatens its survival. Therefore, it is imperative to be aware of the various risks, to understand the potential impact of business, and to know how to handle it efficiently. This article contains some practical guidelines for minimizing risk. The discussion is done in the following chapters:
Detailed design is a long way to go about risk reduction. Planning should include:
- Feasibility Studies It is important to establish viability of a new venture through an appropriate feasibility study
- Business Planning. The business plan describes in detail when and when they achieve strategic goals.
- Cashflow Forecasts Too many businesses are involved in cash flow issues that could be prevented. Planning and timing of expected cash inflows and losses is indispensable.
- Financial Planning Good financial planning involves many things, including planned management accounts and underlying indicators. Preventive observation and correction of potential profitability, liquidity and solvency problems reduce the risk of financial difficulties
- Project planning Any relevant ad-hoc project is generally managed more efficiently in a company through appropriate project management. This includes mergers and acquisitions, new products entering the market and expanding to new areas.
When companies evaluate risks, they often forget the human element. This is potentially one of the most dangerous risk factors. Relationships should be nurtured. Particular relationships that are important are:
- Suppliers. Good relationships with suppliers are just as important as any other interested party. There is good reason to negotiate good credit agreements with suppliers and to pay as soon as possible, but commitments must be respected after the conclusion of the agreement
for buyers. Customers should always have excellent service and have to be honest and respectful. Most of the business line usually comes from existing customers. A particular bad practice is to try to quickly calculate a customer using a very fast margin.
- employees. Companies often lend their lips to the importance of employees. Confidentiality agreements and trade restrictions can reduce the risk of unhappy or unfair personnel but never be as effective as a loyal and motivated employee group.
- financiers. Transparency and information are essential for investors and bankers. No one likes blindness or unpleasant surprises. It is also a good practice to offer more than what was promised. Financing in difficult times may be a survival.
- Other Stakehol de rs. The relationship with all other stakeholders must be maintained. This may be the local government, the industry's leading bodies, service providers, and others.
The core of the collateral is to bypass the potential negative impact of business activity, product, and so on. Through. in the financial sphere, but it is also operative (to some extent) operationally operative. Some of the methods to cover business are as follows:
- Suppliers. Replacement suppliers (especially critical products, raw materials and services) are good practice. This prevents the company from getting paid for a non-cooperative or out-of-stock supplier.
- products. Any company must constantly offer new products to its offer. Just relying on some good products can be very risky.
- Manufacturing. It is worth considering the various production plants (if the size of the business justifies). This reduces the risk of the enterprise, for example due to natural disasters and labor disputes
- Distribution. Backup warehousing and distribution channels are recommended.
- Customers. We've seen successful businesses that have caused serious problems when they lost their biggest customers. Customer risk can be significantly reduced by many (and loyal) customers.
- Geography. Political or economic instability in the country can be very dangerous for businesses operating there. If possible, it is advisable to spread the risk across multiple geographic areas.
- seasonality. Product and service bids covering different seasons have a very positive impact on cash flow and minimize potential risks.
- ICT. Very few companies are able to survive without the right information and communication technologies. Backup Procedures and On-Site Facilities Reduce Potential Risk
- Financial. Financial risk management is very large for international large corporations. If you sell your products on the international arena, there are many products available to cover different risks. The risks that need to be considered include the currency, interest rates and stock market risks.
Discipline can reduce risks in all areas of business. Discipline should apply to the aspects discussed above and to the following:
- expenditure. Expenditure needs to be verified, especially in times of wealth.
- Debt. Debt promotes business growth. Excessive debt trading is, however, very vulnerable to eliminating adverse effects.
- Cashflow. The lack of adequate cash flow is potentially fatal business risk. Cash flow needs to be handled carefully.
- Growth. Business growth requires additional working capital. Unchecked growth can lead to a financial crisis or even bankruptcy and should therefore be avoided.
Business life is a reality. When these risks are managed successfully, the reward can be significant. If not, your business may be seriously compromised and even crash. Unnecessary (and stupid) to ignore the risks. By following some of these principles, these risks can be drastically reduced.
Copyright © 2008 – Wim Venter
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