Though the sales and profit margins are important to business planning and strategy, risk can be equally important and can easily be overlooked. Every business has its own risks and if these can be controlled then it will assist with sustainable growth. Some businesses do not understand the importance of having an explicit risk strategy that is understood throughout the company. In the current economic climate it is easy to take on any business when you are trying to grow. A risk management strategy will allow everyone to know what to refer to when decisions are being made.
When considering a risk profile you need to refer back to the overall business plan as the two need to work together.. By developing a risk profile, you help to identify opportunities as well as minimise bad debt.
Your overall aim should be to increase business with the customers that are low risk and mitigate risk as far as you can with customers where the risk is higher. Doing this process will also allow you to look at different markets that you could expand into.
Examples of things to cover in your strategy are;
- Customers Credit Worthiness – How are credit limits decided? Is Credit insurance a worthwhile consideration?
- Credit Control – How are customers chased for late payment? What payment terms are given?
- Pricing Policy – Is it ‘across the board’ pricing or can more be charged where there is more risk? When do you increase prices?
- Suppliers – What do you know about them and do you have alternatives in place? You may trust your supplier but do you know anything about their suppliers and any potential knock on effects? Are the credit limits you are given sufficient? If not, do you have enough cash?
- Costs – Fluctuating costs can be absorbed to what extent?
- Relationships – What’s the best way of maintaining a professional relationship with both customers and suppliers?
- Geographical Areas – Where are you prepared to go to do business? The further away you are can be more risky? Do you export? Which are the best countries to export to? What are the risks in each country?
- Finance Information – What information is provided? Is it detailed enough to give a meaningful insight into the business and allow for quick changes when issues are identified. Does it satisfy stakeholders in the business such as financial institutions? Businesses fail because they run out of cash, FACT. Can you identify where cash maybe needed, or whether you need to increase/decrease in stock levels?
- Fraud – Is the company alert to any potential risk?
- Employees – Are they trained well enough to do the job that is being asked of them?
Here at ABL Business we can help businesses mitigate risk by ensuring you have the right finance partner in place and adequate funding in place or having a proper marketing strategy to assess the markets and customers. We can also assist with credit control, debt collection and bookkeeping.
Though risk can never be eliminated fully, by having a strategy it can be mitigated and become really important to the management and success of the business.