90% of startups fail! One of the primary causes of this failure is poor risk management. Risks are scary, and closing down a business is worse.
While it’s essential to focus on how your business will succeed, it’ll be foolish to ignore risks that can cripple it in no time. Some potential risks are fire, fraud, fire, or hurricanes, among others.
Securing your business against such risks will ensure future success. How can startups manage the curveballs thrown their way? Keep reading to find out.
What is Risk Management?
Before we even delve into detail, you must understand the meaning of that term. Risk management is the process of identifying and analyzing risks that could be encountered as a project continues. After identifying potential hazards, the manager helps the business meet its goals by following the set direction despite disturbances.
Risk management not only involves planning but also reacting to situations because there is a need to find solutions to risky situations.
This stage begins with assessing different risks your startup is exposed to and analyzing them. How is your business exposed to both positive and negative risks? Once you determine the potential risks, check on what manner they can affect business operations.
It’s essential to estimate the damage that could be caused by the occurrence of adverse risks. Some of the risks to consider in this stage are financial and operational risks. A country’s economy may lead to financial risks.
Strategic risks, on the other hand, include branding and competition. Identifying all these risks and planning how to counter them is an excellent strategy.
At this stage, it’s crucial to measure the potential severity or frequency of identified risks. During risk evaluation, you have to consider several factors such as regulations, laws, finances, technological malfunctions, socio-economic events, and potential competitors.
You should use a heat map as a tool to determine how beneficial or dangerous a risk is. Remember to include severe and frequent risks.
You need to invest in many resources to solve or prevent severe risks. At the end of this stage, a manager will know what risks to prioritize and how to spend resources wisely.
Understand Your Financials
Knowing how you get money and how much you spend is vital. It’s equally important to store some cash for rainy days. Manage to book-keep by yourself or hire a professional. Seeking the services of an expert is the better option.
Establish good relations with vendors and suppliers so that they can pay you in advance in case you encounter a financial crisis. What will you do if you lose your best client? What if your most profitable product stops selling today? Ask yourself these questions and prepare how you can counteract predicted financial risks.
Take Protective Measures against Cybercrime
Nowadays, cybercrime is not something that any business should overlook. Any start-up can fall prey to it. Hackers are now focusing on cloud-based systems which most organizations use.
To secure your startup against cybercrime, educate employees on how to use the internet safely, create safe passwords, and ways of protecting company data.
Seek Legal Aid
Most entrepreneurs find it expensive to hire legal aid during the first stage of their business. However, for a startup to succeed, legal advice is needed. Hiring a lawyer or an accountant to protect your assets and take care of financial liabilities will bear fruit with time.
Similarly, it’s crucial to hire an attorney to advise you on daily business affairs. Listen to close advisors who can point out mistakes and express their doubts.
Say No to Long Commitments
Some entrepreneurs are overwhelmed during the onset of a business, and this could be the path to their graveyard. You’re not sure about your future even after taking calculated risks. Long term commitments could bring a severe financial burden.
Do not sign a long term lease for business premises. During the initial years of the startup, a lot of dynamics are involved. Customers change and regulations might turn unfavorable. Your scope may also change with time. Flexibility is crucial for all startups in the first few years. You need to adjust in case anything happens.
Once you identify potential solutions, allocate resources to each. Resources needed to implement a solution could be time, workforce, or money. Organize and plan everything at this stage to avoid confusion and delays.
Every employee involved in the process of risk management should be formally informed. This way, subjective differences won’t be encountered along the way.
If you keep procrastinating risk management, you’ll get caught unawares, and your business will fall in no time. As you enjoy the growth of a startup, predict potential risks, and plan how you can prevent them. If you follow the above guidelines, your startup will prosper despite the occurrence of any risk.
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