Building your business risk minimisation strategy
A profitable business is highly dependent on the way it manages its risks.
Every company is exposed to a degree of risk around its financial, operational and reputational decisions through to its compliance to regulation.
There’s also risk factors that can lie outside of any company’s control like environmental or external conditions including the economy and seasonal weather.
“No business is exempt from risk,” explained QBE Insurance National Product Manager for Commercial Lines, Andrew Norris.
“But the point of difference between a successful and an unsuccessful business is a company’s organisational resilience which essentially comes down to its risk minimisation strategy,” he added.
Norris outlines below some core mitigation strategies for common risk areas faced when running a business.
Winning customers is essential to sustain business, but many companies are highly reliant on just one or two customers because they may account for a large portion of revenue.
“An SME may have one major client that generates 60 per cent of their total revenue,” explained Norris. “It can be risky to depend on just one or a small group of customers especially in the start-up phase because it can really affect short-term profit and cash-flow.”
Establishing long-term service contracts with key customers is a strong step to minimise the risks associated with dependency on select clients.
“Additionally, business owners could implement strategies to develop their smaller existing customers, such as cross-selling their products or services, so they could potentially become larger customers. This spreads the dependency risk,” Norris added.
From an insurance perspective you should consider reviewing the ‘customers and suppliers’ additional benefit in the Business Interruption section to see if this cover suits your particular needs.
“When thinking about your business’ exposure to risks associated with your suppliers, all key considerations are very similar to customers,” explained Norris. “It’s important to make sure all your eggs aren’t in one basket.”
Business owners shouldn’t be over reliant on just one supplier. They should be aware of alternative channels or maintain strong business partnerships with multiple suppliers that are suitable for their company needs.
Heavy usage of social media platforms has meant there’s an increase in company reputational risk.
“It’s meant that consumers have the power to shape perception of brands instantly and at large scale,” said Norris.
“Implementing quality assurance systems to avoid complaints around customer service or products helps to avoid a ruined reputation initially,” advised Norris.
“But training is essential for employees in a digital age around reputational risk.”
Companies should consider investing in the education of their employees to teach them about best practices on social media platforms.
Cash is king in any business. But many small businesses in Australia struggle with cash flow management and face risks around liquidity.
The number one cause of failed SMEs for three years running is inadequate cash flow, according to the 2016 Australian Securities and Investment Commission (ASIC) corporate insolvencies report.
“Forecasting cash-flow and managing your ingoing and outgoing expenses on a monthly basis is good business sense,” advised Norris.
Having a strong grasp on the financial forecast of your business means you’re better placed to make decisions throughout the year if there are any shortages or surpluses in cash.
“Keeping tabs on market conditions depending on the industry is really important,” added Norris. “It could help anticipate your financial decisions based on seasonal fluctuations in cash-flow.”
The advice on this website has been prepared without taking into account your objectives, financial situation or needs. You must decide whether or not it is appropriate, in light of your own circumstances, to act on this advice. You should ensure you obtain and consider the Product Disclosure Statement for the policy before you make any decision to acquire it.