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Prepare for business
When starting a business there are many factors that need to be considered and everyone will offer a different opinion on which are the most important. With so much pressure on your time and resources it is important to prioritise carefully.
Decide what you need to deliver in order to get your business going and what to focus on in terms of the risks your business might face.
There are four key areas of risk that businesses should be aware of, Financial, Strategic, Operational and Hazard. Which of these will be of the greatest risk to your business will very much depend on the industry sector you are operating in.
By identifying the risks that are relevant to your business and by taking appropriate steps to minimise them you will help to make your business become more stable and perhaps more profitable.
The four key areas of risk are split between external and internal drivers, threats to your organisation that may be caused by a number of factors; from external economy movements to internal industrial espionage, and from external natural disasters to internal cash flow.
The key thing is to identify where your business might be vulnerable and what cost effective defence measures you can take.
External Financial risks include fluctuations in interest rates, the availability of credit, or foreign exchange rate movements.
If, for example you are doing business in Europe and invoicing in or taking payment in Euros, you should consider the impact that a movement in the price of the pound verses the Euro would have.
There are steps that you could take to mitigate this type of risk like insuring against the exchange rate movement by buying a Tender Exchange Rate Indemnity.
Internal Financial risks include risks to your liquidity and cash flow. It is important to draw up cash flow forecasts and business plans, and it’s equally important to monitor them and keep them up to date.
Forge good links with your bank or other lenders so that they might look at your business more favourably should you experience a glitch in your cash flow. Be mindful of customers that may have financial troubles and consider insuring against non-payment by taking out a bad debtor insurance.
External Strategic risks include the relative strength of your competition, changes in the industry, or changing customer habits and tastes. You should make sure that you fully research the market, your competitors, your customers and their demands and needs before starting your business, but you should also continue to monitor and respond to these factors.
Internal Strategic risks include the costs of research and development and intellectual capital. It is easy to get carried away with product development or research, but consider how research and development fits in to your overall business strategy when deciding how much to invest in it and make sure that you stick to your investment plans!
External Operational risks include regulatory requirements. All businesses should take steps to ensure that they are aware of and compliant with the regulations that apply to them.
They should also consider putting in place directors and officers liability policies to cover their directors and officers’ individual liabilities and entity cover to protect the entire board from prosecution should an inadvertent breach occur.
Internal Operational risks include threats to your recruitment processes and supply chain as well as accounting controls and information systems. You should manage your recruitment processes to make sure that you have staffing levels appropriate to your business objectives and goals.
External Hazard risks include environmental hazards and natural events. If for example, your building is in a flood plain, you can make sure that there are appropriate flood defences or that equipment is installed above ground level.
You can also mitigate risk from these external hazards by taking independent advice about whether you have appropriate control measures in place and by buying appropriate insurances such as business interruption, buildings and contents insurance.
Internal Hazard risks include health and safety issues relating to your employees and the public who might have access to your premises. Keeping your employees and the public safe is something that most businesses do prioritise as the sanctions if things do go wrong can be severe.
The Health and Safety Executive (HSE) is a good source of information when it comes to assessing these risks, but you should also ensure that you have adequate levels of employers and public liability insurances in place.
Once you have taken the time to identify the risks your business faces it is important to formulate an appropriate documented control strategy to eliminate (if possible) or mitigate those risks. Control measures and insurances are both an important part of that process.
Insurance is a key way of mitigating any financial impact on your business should the worst happen.
By Neil Hodgson, risk services director for Oval Risk Services (a division of Oval Insurance Broking Ltd)
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