4 Different Types of Business Risk Your Small Enterprise Faces
In business, two things are certain: taxes and risk.
In this article, our focus is on risk. After all, there isn’t much you can do about business taxes.
Entrepreneurship is shrouded in risk. When you start a business, there’s no 100 percent guarantee that it’ll succeed. In fact, whether your business succeeds or fails is literally a toss of the coin. Almost 50 percent of businesses will fail within 10 years.
Failing to recognize and manage risk is one of the reasons so many businesses die. Continue reading to learn about the different types of business risk.
1. Economic Risk
There’s a direct correlation between the performance of the economy and the performance of businesses. When the economy is expanding, most businesses tend to do well. When the economy slows down, businesses also hit a slump. It’s during an economic recession that most businesses fail.
As a business owner, the performance of the economy is beyond your control. The COVID-19 pandemic is an example of how an unforeseen event can ruin the economy and hurt businesses in the process.
There are steps you can take to shield your business from economic risk. For example, ensure you have adequate working capital, especially during an economic slowdown. This will help ensure you have enough money to fund the business’s day to day operations even when revenues are low.
2. Cybersecurity Risk
You might think that your business is too small to be targeted by hackers, but you’d be very wrong. 43 percent of online attacks are aimed at small businesses like yours.
So, when you start using technology in your business, you’re exposing yourself to cybersecurity risk. A single data breach can have massive ramifications for your business. Most small businesses that suffer a data breach go out of business in six months.
Implement cybersecurity policies and systems will go a long way in keeping your business out of the reach of hackers.
3. Financial Risk
82 percent of the businesses that fail do so because they run into financial problems.
Clearly, financial risk is a major risk. Some of your clients could default on their payments, disrupting your cash flows.
If you’re going in for a business, interest rate fluctuations can also expose your business to risks. If you take out a variable-rate loan at 4% APR and the rate climbs to 7% after two years, your business will pay a lot more in interest payments.
Hiring a financial risk manager is usually an effective way to manage this risk.
4. Supply Chain Risk
Most businesses rely on an end-to-end supply chain. However, things can go wrong anywhere along the supply line. A labor strike in the port, for instance, will disrupt the flow of raw materials or products.
Managing supply chain risk starts with identifying all the things that can go wrong in your supply chain. You can then develop effective mitigation strategies. Check out safetyfocus.assp.org/risk to learn more about this type of risk.
Know How to Manage the Different Types of Business Risk
There are different types of business risk your company will be exposed to. What makes the biggest difference is how you manage those risks. With this guide, you now know what you can do to mitigate the most common risks.
All the best and keep reading for more tips.
Author: Ester Adams
