Identify and Control Your Risks
Assess threats to your business and determine how you will manage risk.
As you researched to get to this stage, you undoubtedly became more aware of the risks. Now is the time to take an open-minded look at which threats you might encounter and to develop your strategies for mitigating risk. Business and life are risky; there’s no getting away from that. Your goal with this Element is to chart a path you can live comfortably with. Here are some of the demons you might face–feel free to add a few of your own.
Threats and Mitigation
Employee or Contractor Disputes
Do your due diligence before hiring or signing contracts; develop clear agreements and ensure you live up to your end of those agreements.
Health and Safety
Know the regulations, be vigilant for liabilities, create and distribute policies and procedures, and buy the appropriate insurance(s).
Personal Safety
Be aware of areas within your operations where personal safety could become an issue. Provide ongoing education for your employees about risky areas and suggest safe practices. Develop and publicize standards and policies for all nature of harassment. Make it part of your mission to create a working environment free from discomfort, intimidation, or offensive acts.
Fatigue and Burnout
Be sure to get into a type of business that you enjoy and one that doesn’t keep you stressed and fatigued. Youthful vigor has pulled me through many 20-hour days and too many 100+ hour work weeks. Being committed to your business is a good thing until it begins to take a toll on your health. Often it’s when the business gets into trouble that an owner starts slugging it out for long hours, days, or weeks on end. The scariest thing about burnout is that it creeps up on you. In my case, it wasn’t until long after the business crises that I fully realized how thoroughly drained I was. Stay fit, exercise regularly, eat well, and get enough sleep and play. Learn and pay attention to the signs of burnout and make adjustments when it hits.
Lawsuits or Fines
Operate in a spirit of fairness; document everything; develop and use procedures for documenting and dealing with critical incidents.
Fire and Emergency
Create escape procedures, place them in visible locations, research the relevant regulations, train staff and contractors, and buy insurance.
Facilities and Equipment
Facilities bring with them a host of threats, from fire and theft to health and safety issues. The insurance Industry provides coverage for just about every occasion. It is possible to spend all of your would be profits on insurance. You must determine your level of risk and purchase the right amount of insurance.
Computers, Website and Technology
Today’s workplace is highly dependent on technology. For the most part, if our computer, email, website or file server misses a beat, we cannot work. This means taking safety and security seriously from the ground up. Use quality equipment and back-up everything regularly. Use a reputable Internet service provider and a level of technical support appropriate to your need.
Intangible Properties, Copyright and Trademark Protection
The world of intangible properties is undergoing dramatic changes as businesses and governments struggle to embrace issues globally. This area, as witnessed by the music Industry, is a hotbed of theft, wrongdoing, and litigation. Your best mitigation is to engage a competent IP lawyer and play by the rules for each jurisdiction you operate in. Recognize there are areas in the world where copyright and trademark have no substance whatsoever.
Sales Shortfall
Your business plan is only as strong as your confidence in your sales projections. If you are not confident in your ability to meet the sales projected in your business plan, redo the projections until you are. New business start-ups tend to be too optimistic in projecting sales. Keep your projections as comfortably low as you can. It is healthy to have a certain amount of money set aside (contingency) to see you through if sales fall short.
Product or Service Quality
When it comes to dealing with customers, a business owner is fully responsible to maintain product or service quality. There may be many others in the supply line who have control over aspects of the quality, but you are accountable to your customer. Develop a quality statement and live up to it.
Supply
A number of factors can create interruptions in your supply of goods or services. It is important that you assess these factors and prepare alternative plans to provide your product or service. The entire world runs on supply and demand. If your supply chain is rife with threats, perhaps you need to consider alternates. The dynamics are very different for a simple service business where you, the owner, provide the service. Any supply problems are then directly related to your ability to provide the service.
Competitor Reaction
How will your competitors react to your entry into business? If you think a competitor will lower prices, can you withstand a protracted price war? Sometimes an Industry is large enough, or a business differentiated enough, that competition is not a big concern. Other situations require going head to head with existing businesses. Whatever the situation, the onus will be on you to stay ahead of your competitors.
Politics
Ah, politics, the oldest prostitution! You will not escape politics; they are pervasive, ever-changing and powerful. The time to assess and understand the politics affecting your business is during the start-up stage. How is your crystal ball working? Educate yourself on the politics of your business, determine the level of risk and then decide whether you can live comfortably with those risks. Once you are in business, stay involved; keep a thumb on the pulse of your Industry and your business.
Legal and Regulatory
The onus is on you to know the laws and regulations affecting your business. Ignorance is not a viable defense. As with politics, pre-start-up is the time to assess and determine whether you can live with the laws and regulations governing your business. Know the rules and stay on top of changes.
Cash Flow Shortfall
Cash flow is the lifeblood of your business. Stop the cash flow and your business quickly dies. From opening day onward you are responsible to orchestrate a balance between revenues and expenses. This will entail making sales, collecting receivables, purchasing supplies, maintaining equipment, paying expenses and hopefully paying yourself. There are a few things you can do to stack the cards in your favor. Foster a positive credit rating, develop a solid relationship with your banker, maintain access to an operating loan, keep headroom on your credit cards, pay expenses promptly to avoid interest charges, open and use trade accounts where appropriate, and regularly save money to build up a contingency fund.
Bad Debts
Some types of business require that you extend credit to customers. For example, many government contracts tend to pay two to three months after a service is provided. If it’s the Industry standard, you will have to conform in order to remain competitive. If the Industry standard is to be paid cash, stick to it. If there is no compelling reason to extend credit, don’t. Limit the amount of credit you extend to customers and stay on top of your receivables. If you detect a customer slipping away from you, communicate directly with him or her.
Action
If you have set up a working copy of your business plan using the Shell™, this information will be entered as a table under section 4 “Operations” under the heading 4.4 “Risk and Mitigation.”
To complete this Element you will need to determine your facility, equipment and liability risk, then:
- Review your market research with an eye on threats to your business.
- Download the Threats and Mitigation Worksheet and brainstorm and prioritize a list of risks to your business or enter the information directly into your business plan under section 4 “Operations” under the heading 4.4 “Risk and Mitigation.”
- List your strategies to mitigate each risk or threat. If necessary, do more research.
- Contact a trusted or referred insurance agent to determine your insurance needs.
- If you used the Threats and Mitigation Worksheet copy the information into your business plan to section 4 “Operations” under the heading 4.4 “Risk and Mitigation.”
Some of your threats will require insurance. The list of different types of insurance is endless. A few types of insurance you may want to consider are: house or business premises, vehicle, liability, inventory, business interruption, disability, partnership, and loan insurance.