Within the first year of starting up, around 20% of businesses fail, with 30% more failing by the end of their second year. There are different factors that can play with the failure of a business, like outside events or the economy, but any business owner knows before even starting their company that it is a risk.
There are common business risks that can get in the way of you achieving your business objectives or goals. While many of these risks can be outside of your control, such as a global pandemic, it is important to know the types of business risks that could potentially affect your company.
If you’re wanting more information on managing business risks, read on for more information.
1. Economic Risk
Positive changes in the economy can be good for businesses, resulting in customers making more purchases. If the economy takes a downturn, then it can potentially reduce your amount of sales. Watching the economy and the trends it takes can help you monitor any potential issues and plan ahead.
To help your business with economic risk, it’s important to have a good pad in your savings account to help your cash flow. Keep your budget minimal with low overhead through good and bad economic cycles.
2. Compliance Risk
Laws and regulations change often and it’s important that you stay on top of which ones apply to your business. If your business is expanding, there’s the chance that you’ll have to comply with new regulations that you didn’t have to before. Monitor laws from agencies such as the Environmental Protection Agency (EPA), the Occupational Safety and Health Administration (OSHA), and local and state agencies to ensure you’re staying compliant.
3. Strategic Risk
Even if you have a comprehensive business plan, things can change quickly and your well-thought-out strategy can turn into something that isn’t relevant or applicable anymore. Strategic risk is how your business’s strategy can be less effective over time and you will be unable to meet your goals like you used to.
Things like technology, a new competitor, or changes in customer demand can affect that. Failing to adapt your business when a new strategic risk comes into play can have detrimental effects on your business, such as bankruptcy. Taking out a captive insurance policy can help your company in times like that.
4. Financial Risk
Financial risk could mean your business’s own debt or lines of credit that you extend to your customers. Adjustments will have to be made to your business plan to ensure your cash flow isn’t affected or you don’t unexpectedly incur a loss. One way to avoid financial hardship is keeping minimal debt and implementing a plan that reduces the amount of debt you have quickly.
Be Informed on Types of Business Risks
Risks taken in business ventures are part of the, well, risk in opening and running a business, but that doesn’t mean you need to be caught off guard by them. Knowing the types of business risks your business may be exposed to is vital in preparing for them and knowing when and how to pivot.
For more information on business strategies, check out one of our other articles.
