The events of 2020 forced companies to adapt, virtually overnight, to a volatile commercial environment. Businesses needed to immediately (and in most cases reactively) implement tactical risk management strategies to be able to continue to deliver their products and services in the midst of a global pandemic.
If you’re a small business, it’s now up to you to combine your cumulative learnings from 2020 and apply them to your business to ensure you’re as ready as you can be for the unexpected.
What is risk management?
Risk management is essentially the process of mitigating the negative impacts of dangers or threats to the business.
Different businesses will face different risks, and all owners and managers will have varying risk appetites. So, while every business should definitely have risk management plans and procedures in place, exactly what is involved will be unique to your business.
Common small-business risks
Small-business risks fall into several key areas:
- Economic – the impact of COVID-19 on the global economy is an extreme example of how external factors can affect your business’ bottom line.
- Financial – cashflow and debt influence the bottom line of every small business. Controlling debt and avoiding over-dependence on key clients can help reduce your exposure.
- Operational – any event which impacts the business’ operations, such as broken equipment affecting production, or staffing issues (sickness, productivity, errors), or even external factors such as extreme weather or health hazards like broken plumbing.
- Data security – the safe collection, storage, and management of customer and stakeholder data is critical. You may be liable for any data breaches, the consequences of which can be serious and costly.
- Compliance – the regulatory landscape is complex and fast-moving and it’s your responsibility to ensure your business complies with all regulations that affect your operations.
- Reputation – the impact of damage to your reputation from an unhappy customer or disgruntled ex-employee can be huge. Focus on quality of service/product delivery, addressing complaints promptly and professionally, and actively staying on top of your brand’s reputation.
- Competition – Watch what your competitors are doing. Don’t be so buoyed by success that you lose sight of advances being made around you.
A considered approach to risk management (including risk analysis) will assist you in safeguarding those areas where your business might be vulnerable.
Risk management in 2021
Managing the ongoing impact of COVID-19 on your business will continue to inform our “new normal” in 2021 and beyond.
So, be prepared. Compiling – then managing – a risk management plan is fundamental for any business, no matter the size. How and why you have chosen to treat risks should be outlined in your plan, and it’s important to review it thoroughly and often to include any new risks associated with any changes in your business or improvements in techniques for treating risks.
Because eliminating all risk is impossible, risks are minimised via your quality control processes. Reduce risk by:
- conducting audits
- ensuring you are compliant with legislation
- making sure your staff are trained
- organising regular maintenance, and
- modifying your procedures as needed.
If a risk is beyond your control, a comprehensive risk management framework will help reduce its impact.
The mass transfer of Australia’s workforce during 2020 proved that, when necessary, widespread adaptation can take place with little warning and minimal impact on productivity.
The businesses which best survived lockdowns did so by adapting best to unprecedented circumstances, and the takeaway for small business throughout has been that flexibility and agility are the keys to survival and success. Preparedness is key when it comes to risk management. No business is 100 per cent insulated against risk, but all businesses should take steps to be prepared for it.
Mellissa Larkin, Founder and Managing Director, Peripheral Blue