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Managing Risk in your Business

A very important factor in any business is how you manage risk -

yet it is a factor that is often ignored by home businesses.

The balance between risk and reward is the very essence of

business. You have to take risks in order to generate returns

and, generally speaking, higher returns involve greater risks.

In a world of increasing complexity and uncertainty, companies

must manage risk more rigorously then ever. It is an essential

aspect of good corporate governance today.

To manage business risks it is imperative that a company is

structured from the board downwards to provide clear controls on

risks and to deliver transparent reporting to stakeholders.

Passively complying with rules and regulations is no longer an

option.

You have to realise that any time you start a business, you are

taking the risk that the business might fail. What experienced

people do is shield themselves from risk at every opportunity,

to make sure that they can keep a business going for months on

the brink of disaster, and wind it down gracefully if it really

has to go under.

You need to have a plan for what you're going to do if your

business looks like it's going bankrupt. Are you going to borrow

more money, if you can? Sell your car? Raise prices? Get rid of

staff? Done right, you should have a good package of 'rescue

measures' that really do have a chance of rescuing the business.

Price Hike

When your business is in trouble, there are few things

guaranteed to destroy it faster than a price rise. Just don't do

it, however tempting it might be - cut costs instead. If you

absolutely must raise prices, do it by scaling back what you get

for your money in each of your price ranges, without actually

raising the prices.

I know of a struggling bus company that kept its fares the same

for years but gradually started to run fewer buses and send them

all over town, making journeys take longer. People reacted a

little badly to the longer journeys, but it was nowhere near the

scandal that there would have been if prices had risen.

Borrowing

If you need to borrow more to keep your business afloat, take

great pains to avoid looking desperate. Act like your business

is moderately successful but needs more investment, and you're

far more likely to succeed in getting more funding.

Bye-Bye Staff

This is a bad idea, but not always a terrible one. In a home

business, you presumably only take on staff because you have

enough business to cover it, don't you? So it makes perfect

sense to get rid of the staff when things start to go wrong and

go back to doing it all yourself.

Keep Staff Pay Aside

Whatever you do, make sure to keep staff pay separate from the

other business finances, and pay it out immediately if the

business looks to be heading for trouble with its creditors. It

is far better to be paying your staff on the last day than to be

giving all that money to the creditors. Leaving staff unpaid

will destroy your reputation, not to mention hurting a lot of

innocent people.

The 'Closing Down' Sale

If you plan it well, your last day in business might not be so

bad. Just make sure everyone knows that you're closing down for

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real, but still price everything ever-so-slightly above cost. In

this way, you can avoid the drastic loss-making 'Everything Must

Go!' mentality, and come out of your business the same way as

you would if you'd decided to shut it down that day for some

other reason.

Selling Your Business On

If you're shrewd about it, you might be able to keep your

business going long enough to sell it to someone who could turn

it around. There's nothing dishonest about this route - it's the

one most big companies take if things start to go wrong. You

might even find that one of your competitors is willing to buy,

even if only for your established customer base.

It's Up to You

Disaster plans are very personal, and they depend a lot on how

much risk you're willing to put on yourself. If you do things

the sensible way, then you'll go as far as you can to avoid

selling or borrowing against any of your own assets just to keep

a business afloat. On the other hand, if you're really

determined and a bit of a risk-taker, putting some things of

your own at stake might buy you enough time to recover from

whatever hit your business.

It's a little like playing poker: are you going to be the guy

who walks away and leaves his money on the table, or are you

going to throw your car or house keys onto the table and raise

the stakes? That's risk management for you.

About the author:

Original Source: Articles-Galore.com

Information supplied and written by Lee Asher of CyberTech SoftShop

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