Risk Management For SME’s

You only find out who is swimming naked when the tide goes out. Warren Buffet was referring to risk management in the stock market when he made this quote, but it applies equally to small business. Risk management is the identification, analysis, assessment, control, and avoidance, minimization, or elimination of unacceptable business risks.

Business risks can usually be classified into one of the five following categories:

1.Strategic Risk: the risk that your business strategy becomes less effective due to technological changes, new competitors, shifts in customer demand, rapid cost increases or other changes. Eg. Kodak, American Railways

2.Compliance Risk: risk of failing to comply with all laws & regulations applying to your business

3.Operational Risk: an unexpected failure in your company’s day to day operations or processes

4.Financial Risk: the risk of a sudden financial loss or impact of external financial factors. Eg. Creditor risk, interest rate risk, exchange rate risk

5.Reputational Risk: risk of damage to the businesses reputation due to lawsuits, product recalls, poor customer reviews or negative publicity.

Have you fully considered the risks to your business? Consider the questions below in the context of your business:

• What would you do if your largest customer left or became insolvent?
• Can you access critical IT infrastructure in case of hardware or internet failure?
• Do you have a business continuity plan in case of inability to access your business premises due to natural disaster?
• Is your business model reliant on government policy that is subject to change? Eg. Job network providers, superannuation
• What would be the impact on your business of a rapid appreciation or depreciation in the value of the Australian dollar?
• What would be the impact on your business of a rapid increase in the cost of fuel, diesel or other key commodities?
• Are you a ‘price taker’ whose product is subject to rapid movements in market prices? Eg. Commodities.
• Location risk – is your business reliant on local mining, construction or other boom – bust micro economies?
• Key Person risk – what would happen if you or a key staff member was unable to work for extended periods of time
• Do you have internal controls in place to prevent employee fraud & theft?
• Are you competing against large, well capitalized competitors? If so, what are their plans with relation to your location?
• Operational risk – to you have processes in place to control the key processes within your business? What would happen if one of these processes failed?

Rockwall Partners has first hand experience in stepping businesses through this risk assessment process and helping you get clear responses as well as communication and remediation plans as required. If you are falling short or feel like you’re swimming naked in any of these areas, give us a call, we’ll grab a coffee and step you through it..