How can I avoid common business risks?
Every small business faces risks. Once you acknowledge that fact, you can put plans in place to minimize them. Here are four common risks along with prevention tips to consider:
Economic risks. While you can’t predict or prevent an economic downturn, you can prepare your business for a drop in cash flow. Ideally, your first priority should be to build cash reserves to cover three to six months of salaries and expenses. To achieve this, look for opportunities to refinance to loans with longer terms or lower interest rates and avoid unnecessary expenses. Try to operate beneath your business’ means.
Customer risks. If you have slow-paying customers in good times, getting access to that hard-earned money will be even more challenging when the economy slumps. That’s why it’s important to track and collect overdue invoices during ALL economic conditions. A payment automation solution can help with this. Also, conduct credit checks on new customers and seek upfront deposits on large orders. Consider purchasing credit insurance to manage your accounts receivable risks.
Employee risks. While critical to your success, employees also create risks. Those who handle cash or have access to sensitive information expose you to security, theft and fraud risks. Conduct background checks and authenticate credentials on new hires. Security cameras, approval workflows and other internal controls, such as eliminating petty cash from your operations, can help protect you from losses. Liability insurance can be purchased to compensate for harm an employee mistake may cause.
Operational risks. In every business, mistakes happen. Minimize them by regularly reviewing your safety policies and procedures with staff. To reduce human error, employ automation when possible, especially for repetitive tasks like bookkeeping and payments. When mistakes occur, work to get to the root of the issue immediately so it can be prevented in the future.
The bottom line: Avoiding all risk is impossible but a risk management plan can significantly minimize their impact.