When it comes to planning for the future of any business, it is important that you are fully aware of any business risks that you have coming up. A business risk is something that may stop you from hitting your goals in the future. These risks can often be within or out of your control.
Risk is not always a bad thing, as there is often a relationship between risk and reward. You might have to put your business out there in order to reap great financial success. The important thing is to manage the risk so that the future of your business will be protected and you are not left in a sticky situation.
It is important to understand the many types of business risk that exist so that you can plan for your future success. Here are the most common types of business risk:
1. Operational risk
These types of risk are where most businesses miss out on the potential to grow and retain their customer base. The potential for failure related to the operations of an organization such as a customer service or application process can have a huge knock-on effect. If the processes that you have in place are not effective or lack an adequate success rate, you might be setting yourself up for failure.
2. Competitive risk
If your business does not grow and adapt to the changes in your industry, then you will notice a sharp decline. To mitigate these types of risk, you will need to keep a keen eye on your competition to avoid missing out on potential customers and the growth of your business. If your competition is offering a comparable product or service, you need to ensure that your pricing and quality are still attractive to the consumer.
3. Economic risk
These types of risk can often be completely out of your control and driven by much larger concerns. International trade agreements or changes in the economy could drastically affect your costs. It is very important that you keep your ear to the ground for any potential disruptions that can be caused by such events.
4. Legal risk
New regulations and laws can often have a large impact on businesses. Even the preparation for events like this can be costly. You may also find that there are unexpected legal disputes that can crop up from time to time. To help protect yourself and your company, it is very important that you make sure you have the right legal team on hand.
5. Compliance risk
These types of risk can be very important for all industries, however, some are more regulated than others. If you find that you need to adapt and make changes to how you do things to remain compliant, you might have some unexpected costs. Even with the best intentions and preparations, it can be easy to run afoul of a compliance issue. You should have room in your budget to protect against this kind of surprise expense.
6. Reputational risk
Thanks to social media, there has never been a more effective way for customers to share their customer experience. This is true for both positive reviews, but more also negative comments too. It can be very easy for images and videos associated with your business to go viral and damage your reputation.
Reputational risk and how you manage it can cause a great deal of damage in no time at all. PR is very important and you should always be ready to respond quickly to any social media comments, or news stories that cast your business in a negative and also in a positive light.
7. Innovation risk
There is always a need to have innovation in business. It is how you grow and offer your customers more than the competition. With any innovative tactic or product design, there is always a risk that it will not be received well, or be a success. So, before you launch a new initiative or product design, there should be a plan in place to protect against failure. Both from a reputational and financial aspect.
8. Location risk
Depending on how large your operation is, you could be operating in many places all around the world. You might even be in one of the many socio-political hotspots in the world. If there is anything ranging from a regime change or even a natural disaster, You might find that you need a contingency plan in place to protect your assets.
9. Seasonal risk
If you see a seasonality to your business’s performance, you might find that you need to plan for this in terms of cash flow. You will have a clear idea of when you will be bringing lots of money into the business and when you have dry spells throughout the year. This forward thinking will protect you from any potential lack of operational funds.