TRURO, N.S. — Life can be described as a journey into the unknown to an uncertain destination, without a reliable map. Surprises, good and bad, are waiting around every corner.
While it may not be possible to live a life free of risk, it is possible to be prepared to make the most of the cards we are dealt.
How we think of risk and uncertainty depends largely on our personal inclinations and life experience. Some of us relish the excitement of charging full speed into unknown territory while others have a paralyzing fear of change. Neither of these approaches is particularly helpful in the business context, where success is driven by innovation and growth, and mistakes can sometimes be costly, if not fatal.
I spent a significant portion of my career managing financial risks, meaning I would seek to protect my employers and clients from “worst case scenarios.” This didn’t make me a pessimist per se (pessimists expect the worst thing to happen); rather, it made me a believer in the value of thoughtful planning, aimed at avoiding or mitigating risks.
As a small business owner, you are accustomed to fighting fires on an almost daily basis. It can be exhausting and stressful, and take you away from more productive activities. You lose a key employee without warning, or an unexpected expense drains your working capital. Your bank threatens to reduce your line of credit because you had a bad year. You lose a major client to a competitor because of a lapse in quality control. These are not uncommon occurrences, and they can have “show-stopping” consequences for the business.
Having a process in place to identify and mitigate these potential risks can pay big dividends. And it doesn’t have to be an onerous, time consuming or complicated process. Here are some simple tips to help you reduce the risks in your business:
- At least twice per year, get together with your management team and/or key employees to discuss and identify areas of risk that could represent a serious threat to the profitability and sustainability of the business.
- List and prioritize these risk items in the order of importance and put in place suitable action plans and accountabilities that will eliminate or mitigate the threat. It’s a great opportunity for the team to brainstorm solutions by pooling their experience and talents.
- Review the status of the risk items at the semi-annual meetings, and make modifications to the action plans if needed. Update the List for any new risks.
Well managed successful companies typically pay close attention to identifying, tracking and controlling business risk. This process is commonly referred to as Enterprise Risk Management. FEI Canada is an excellent source of information if you wish you explore this further.
https://www.feicanada.org/thought-leadership/enterprise-risk
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Ian MacFadden is co-founder and Partner of exitRITE Planning Services. His column appears the first Thursday of each month. You can reach Ian at [email protected] or go to www.exitrite.com
