Everyone has their own level of risk and when it comes to running a business the
number of risks increase, the level of risks increase and the combined impact of risks
multiply! So, to make sure you are comfortable with your combined risk level across
the board you need to undertake the very important first step… identifying the risk.
The easiest way of identifying risks is through SWOT analysis, principally the
weaknesses and threats sections.
Doing this on your own, or with a business partner with set, uninterrupted time aside
will help you produce a long list of risks to your business ranging from minimal
impact to huge impact.
But how do you know which need managing?
Once you have identified the risks that your business faces and quantified the impact
that they may have on your business, next is to work out the probability of them
You may have seen a risk register that looks like the following. This shows low
impact / low probability risks in the bottom left and high impact / high probability risks
to the top right.
It is time to plot your risks on to this graph, so you have a prioritised visual of which
risks need addressing first. If you are a spreadsheet geek or just like adding further
detail to back up your thoughts, you can rate the impact and probabilities out of 5 (or more) and then multiply the scores together to get the ‘risk score’. This can then easily
be sorted in order of highest to lowest.
It is up to you and your risk levels of how many risks you manage and how, so the
next step is to identify how you are going to manage the risks.
The following are the four methods of risk management:
- Avoid – not always possible (especially in a cost effective way) but for
example, if there is a risk of cash being stolen, moving to cashless would
eliminate this risk
- Reduce – this could be hedging of foreign exchange rates, adding/improving
internal controls and procedures
- Transfer – through insurance for example, or you could transfer risk to
suppliers or partners in your business
- Accept – accepting the risk usually means you are content with the level of
risk (impact x possibility) for your business
That’s the theory done, next is to put the risk management into play so create an
action plan for each task that needs doing, a due date and then you can be on your
way to managing the risks within your business.
Review – depending on your business will depend on how often you want to review
your risk register and the management methods in place, but at the least it should be
Personal – now you know your business risks, you should identify the risks that any
of these have on you personally. For example:
- If a key person in your company goes sick and this impacts sales & profits –
how does this impact your pay?
- If one of your co-shareholders or partners becomes seriously ill or dies
prematurely, how would that affect the business? Could it survive? What
would happen to their share of the business and voting rights?
- Or if you were ill or unable to work, how would this impact the business and
you financially? Could you cope?
The personal risks listed above all relate to pay from the business and are risks that
should be transferred i.e. insured.
If you want to find out more details on the costs of this type of insurance along with details on the benefits and how it can best protect your profits and insurance, fill in your details below and I can get the specialist I work with to get in touch and give you a free personal risk analysis.