Top 5 Business Risks & How to Mitigate Them

Starting a business is tough. The Bureau of Labor Statistics (BLS) reports that roughly 20% of new businesses fail within two years. It gets worse. Within five years, 45% of new businesses are closed. Within 10 years, 65% fail, and 75% are gone within 15 years.

The 25% that succeeded faced the same challenges that the others succumbed to. Luck might have something to do with their survival, but proactive risk management is a sounder course. From operational disruptions to reputational dents to financial instability, having processes in place could mean the difference between having a going concern when all is done or a failed company.

Below, we look at five of the most prevalent business risks and effective ways to overcome them.

Security and Fraud Risk

Every business, big or small, can suffer from cyber attacks, data breaches, and intellectual property theft. Modern networking and cloud computing have changed the way IT safety is handled, and older ways can now be counterproductive. Malicious actors are constantly evolving their tactics as new technology appears, so vigilance and innovative security measures are required.

Solution: Vigilance and Preparedness
Ensuring that employees understand the basics of information security is the first line of defence against phishing attacks, social engineering scams, and other cybercriminal methods. Simple awareness will go far. However, some forms of attack are not so easy to counter, and it takes software and Data Recovery as a Service (DRaaS) platforms to keep the business in gear while simultaneously warding off the threat.

Compliance Risk:

Keeping current with the regulatory side of a business can be tricky. Crossing jurisdictions can compound the headaches and new technologies can add to the complexity of maintaining legality as much as simplify things.

Solution: Knowledge is Power
Unless you are a sole trader, having a dedicated compliance person or team is a likely solution. Juggling responsibilities among several people can create cracks and silos, not areas of responsibility.

Don’t be afraid to consult! Compliance experts will be familiar with the intricacies of areas that you might not even be aware of. Sometimes a regulation in another market can affect end users everywhere. This holds particularly true regarding data privacy regulations such as GDPR and CCPA. Taxation, certification, and industry-specific regulations all have their subtleties.

Operational Risk

Natural disasters, social turmoil, logistics issues and human error all impact the flow of business. Keeping things moving while facing the biggest threats to business continuity and long-term sustainability is a daunting task.

Solution: Build Resilience
Put in place – and practice(!) – emergency response protocols and DR procedures and work flows. A robust contingency plan has step-by-step procedures or checklists to follow in the event of emergencies. Make sure you cover communication protocols, alternate supply chain routes, and temporary relocation strategies. Forge strategic partnerships with vendors, suppliers, and service providers to ensure business continuity during crises. Most of all, designate people to certain emergency situation roles and, when possible, designate back-up or assistant personnel. Make sure they know what to do when they can and cannot communicate with each other.

Financial or Economic Risk:

Even when the economy is doing well, businesses fail. Sometimes, market or macro specifics take a toll. Sometimes, a key partner or client moves on at an inopportune time, and income cannot recover quickly enough. Effectively managing financial risk includes understanding your own risk tolerance and implementing risk management tactics accordingly.

Solution: Charting a Stable Course
Diversification is a key concept. Multiple income streams reduce dependencies; so do multiple key sales people. Taking a balanced portfolio approach is a good way to look at it. Leverage loans and credit lines carefully; keep your debt-to-equity ratio within limits to minimize debt risks. Financial planning isn’t just for huge corporations, and get some help from a consultant if you need to. Consider future cash flows. Perform a budget variance analysis and model scenarios; do you find new risks? Insurance policies can safeguard against black swans; consider business interruption insurance, key person insurance, and cyber liability insurance as fits your needs.

Reputational Risk

A company’s goodwill and reputation is its most prized asset. This is built over years, and takes both integrity and excellence. However, as the saying goes, it can be destroyed in seconds. Product defects, service failures and ethical lapses easily result in negative publicity and a loss of reputation.

Solution: Build in Integrity and Transparency
Maintaining a good reputation takes the efforts of individuals and groups, but putting the right procedures in place can reduce the burden. Customer feedback, especially from surveys and reviews, is a vital part of maintaining a good reputation. Make sure that lessons are learned from them.

It’s easy to have a good reputation when things are going well; ensure that the same goes when things are not going well. Customer care is not an add-on when it comes to handling returns and repairs. customer feedback, surveys, and reviews to drive continuous improvement initiatives. Cultivate long-term relationships and loyalty, and the first way to do this is by delivering exceptional customer service at every touch-point. Consider crisis management strategies focused on reputational setbacks, and be ready to act swiftly. Tailoring your message for communication with media, partners, internal stakeholders and clients as needed, but consider the broad outline and target audiences ahead of time.

In all, skilful risk management can be a lifeline for any business. Whether you are dealing with black swans or everyday business life, some attentiveness, planning and well-deployed tech can keep you going when others fail.