Prepare for Unexpected Changes: 6 Tips to Manage Financial Risk
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If we learned anything in 2020 it was that every business should plan for the unprecedented and the unthinkable. Whether your business struggled to survive, or actually thrived and grew due to the unexpected opportunities that the situation created, now is a great time to carry out a review of potential risks for the future and be proactive in mitigating them.
Loss of key talent
One of the biggest risks for a new business with a small team, is the loss of key talent. Think about each person – if they left for any reason, what would be the cost of their replacement – in terms of organizational knowledge, functional expertise, potential loss of clients?
In certain high-risk sectors, such as construction, the risk of losing employees (at least temporarily), due to accidents needs to be considered. An employee who misses work due to an incident in the workplace is likely to claim against you. It’s essential to have adequate insurance in place to cover any liability claims. Consult a legal specialist in workers’ compensation to ensure you understand the potential financial implications. This will also ensure you place a renewed focus on safety measures and training.
Minimize foreseeable risks
In the midst of a crisis there won’t be much time to carefully work out the priorities. So go through your options before the worst happens. What’s most important to your business – your inventory? Your data and client list? Your talent? It’s understandable to respond by saying they’re all critical, but thinking through your priorities in an emergency, and being clear about who is responsible for each area, should make good decisions easier when the time comes.
Consult the experts
If you’re a new business owner, it can be difficult to anticipate the unexpected. Regardless of the stage you’re at, it’s always worthwhile consulting experts and taking advantage of their experience to minimize your risk of loss. For example, an experienced
An insurance broker can review your cover and advise whether it’is adequate (or even excessive). A financial expert will be able to review your finances to uncover weak points (cash flow, over-stocking, supply-chain weaknesses) that you might have missed. Then you can take short and medium-term action to address them.
Once you’re clear about the risks, cost each one. How long could you survive if your business had to cease trading, as with Covid? What’s the lowest operating margin if you’re forced to discount to remain competitive?
Work with stakeholders
Disaster planning isn’t something you should do in isolation. Consult stakeholders to plan how you would support each other in case of unforeseen business interruption or slow down. Agree in writing so all parties will be clear about what will happen in the event of a business emergency.
Make a commitment
Finally, commit, today, to reducing potential risks to your business. Create a disaster recovery plan, and ensure that key stakeholders are engaged. Carry out the actions you’ve committed to, so that, what comes, your business remains on a firm foundation.