8 Ways to Reduce Common Business Risk Factors

After the first year opened, 20% of small businesses will fail within the first year. However, you can avoid that by identifying your business risk factors and creating a plan.

But what is business risk management and how does it work?

Keep reading for all you need to know about business risks in order to make sure that your company doesn’t fail.

1. Identify Risks

First, you can use some analysis to help you identify different risks that you need to be aware of in your business.

There are two main types of risks: internal and external.

Internal risks are something that can happen inside of your business, like a fire hazard or hiring bad employees. On the other hand, external risks are something that happens outside of your company that can impact it, like a weather hazard or an economic downturn.

Internal risks also include things like having high employee turnover, theft, harassment, embezzlement, computer failures, or losing data. It’s important to identify these internal risks because these are ones that are within your control to prevent.

However, there are also external risks that are a little bit harder to plan for. These risks include getting your computer hacked, having old technology, a pandemic, and any disruptions in the supply chain.

However, while you can’t control these things, you can take steps to mitigate their effect on your business.

2. Buy Insurance

First, you’ll need to figure out what insurance you want to buy. Some insurance is legally required in order to run a business.

You’ll likely need professional insurance, life insurance, disability insurance, and completed operations insurance.

This will allow you to transfer some of the risks to the insurance company for just a small cost. This small cost will save you money if something does happen, and you can transfer the larger cost to the other business.

3. Create a Plan

You’ll also want to create a risk plan as well. You can do this once you’ve identified risks that are specific to your business.

For each risk that you’ve found, you’ll want to have a plan to mitigate, share, and accept the risk. This will help your company operate and thrive in normal conditions and even if something goes wrong.

For example, if you identify that you have an internal risk of a fire hazard, you can take steps to make sure that threat is mitigated. That way, that’s one less risk that could ruin your business.

4. Diversify Your Company

You’ll also want to ensure that your company is able to diversify. While being in a niche can be great for business, you shouldn’t put all of your eggs in one basket.

You should offer different kinds of products or services or maybe even both. This will help you give your customers more options, but you’ll also have different streams of income as well.

For example, if you sell dog food, you may want to think about branching out to cat food as well. That way, if something happens to your dog food product, you’ll still be able to rely on income from the cat food as well.

This will also make you interesting to consumers as well and help you be competitive in the market.

5. Have a Quality Assurance Program

If you do offer multiple products, make sure that you have an internal process to assure the quality of everything.

If you want to have a successful business, you need to have a good reputation. Customer service is one way to do that.

Test every product or server before you send it out to ensure that it has the highest quality. That way, you can catch problems internally before a customer does, maintaining your brand’s reputation.

6. Do an Assessment

You’ll also want to do an assessment to figure out which risks are a high priority.

You should rank them on a scale from one to five to figure out where you should focus your priorities when fixing these risks. You may want to rank them in terms of how much of a price tag the risk comes with.

For example, if a fire hazard could end up burning your entire warehouse or office down, that one might be important to address first.

7. Document Everything

Make sure that you always have documentation of every transaction for your tax payments. You’ll want to keep track of sales, expenses, and operation costs.

Your employees should also have a good document of everything as well. That way, you’ll be able to catch if you have a small error.

This will also help to mitigate the risk of being stolen from or defrauded. It will give you a good picture of where all your finances are going and help you create a good budget to manage your business financially.

You should also ensure that you’re creating invoices for all of your transactions. Check out this guide for more help with invoices.

8. Transfer Risk

Sometimes you won’t be able to completely mitigate the risk, so you’ll just need to transfer it. One example of this is having an insurance company.

Risk transfers don’t always lower the cost, but they can help reduce any more damage that could be done to your business.

Discover More Business Risk Factors

These are only a few of the most common business risk factors, but there are many more of them that you should be aware of.

We know that running a business can cause you financial setbacks and other challenges, but we’re here to help guide you through that.

If you’re looking for more topics that can help you with your business, explore our website today!