When you have a business, you face many risks. In order to plan for the success, or even survival, of your business, you need to consider the risks and if appropriate plan for them.
The following are some of the more common risks you may face in business. Most are pretty obvious, but there may be some you should consider.
Customer Risk
One of the classic aims of a business is to get a large customer. This is because it is easier to deal with one large customer than several (hundred?) smaller customers, administratively and in terms of developing relationships. You can cross sell to them too? Fantastic, you’ve got more and more sales coming from this source. The risk happens if they decide that they are going to buy from someone else. This is the classic ‘eggs all in one basket’ scenario.
This in itself is fine if you recognise the risk and take action to protect yourself. It’s OK to have one big customer as long as you have other customers, who will provide sufficient business so that you can continue trading short term. Having one single customer is very high risk, particularly if they know it. It gives them great bargaining strength, demanding better service and prices.
Supplier Risk
This is obviously the opposite side of the supply chain from Customer Risk, but is still extremely important. If you have one big supplier, you may probably get price breaks for bulk supply, but again you may have little choice if they decide to increase their prices, delay supplying you or even stop altogether. They may decide they don’t want to deal with you or are pulling out of that particular market, leaving you high and dry. This also applies to a supplier who supplies a key element of your offer.
One answer to this issue may be to identify alternative suppliers, either to keep in case required or even to split the supply; you may not get as good a price and it may mean more admin, but at least if one goes bust, then you’ve got a ‘plan B’ to keep you trading.
Systems Risk
This is concerned with whether your systems are robust enough to withstand problems. If you have a system error that stops you processing sales orders, or placing purchase orders, does it have to be fixed in order for you to march on? If the electric, telephone line or broadband is down, does your productivity stop too? Postal strikes have certainly tested this concept. In these days when we are so dependent upon the internet, particularly for new technologically driven businesses, this may not have been considered. If your system crashes, do you have a back up that can be retrieved? Have you tried it?
There are also other situations where businesses face risk. A product/service risk exists where you have a small number of product lines or a big seller. An employee risk exists where the business is particularly reliant on the skills or knowledge possessed by its employees – the classic ‘hit by a bus’ scenario. Key employees may be in a position where they can take confidential information and either go to a competitor or start up on their own, completing against you.
Hopefully, none of the above will happen or get to the point where they stop you trading or put you out of business, but as the saying goes, forewarned is forearmed. If you can identify some of the bigger risks your business faces, you can take steps to mitigate them.
