Risk Management in Business: How to Minimise Risk and Maximise Profits

Maximising profits is the ultimate aim of most businesses while entrepreneurial risk is a necessary and exciting part of the game for many high-flyers – albeit a terrifying prospect.

According to Entrepreneur Magazine there are seven risks that every budding entrepreneur must be willing to take when they start up, from abandoning the steady paycheck to relying heavily on your colleagues to deliver early in the process.

Risk taking

Starting and running a business is difficult, and the idea is not for everyone – if it were, everyone would throw off the shackles of being an employee and become their own boss. Once you become a boss your responsibilities rocket; your department is every department.

You no longer have colleagues, just employees.

Meanwhile, there’s a list of outgoings as long as a till roll that will gnaw at those profits. Physical equipment such as PCs/Macs and stationery are one thing, but what about the paperwork that needs to be completed? You’ll need security, and insurance from a company such as the Howden Group that covers public liability and possibly professional indemnity, as well as contents cover.

Risk management: What to minimise, and how?

Once the business is up and running, how does one minimise risk? There are two strands to the question – minimising the potential for damage to the business itself, and minimising the risk of physical danger to the employees. The latter can be somewhat controlled by following the guidelines and rules of the Health and Safety Executive to eliminate hazards through simple measures such as checking manufacturer’s instructions, issuing protective equipment and making notes of findings.

Eliminating financial risk is a lot trickier, but you’ll have to at least show that you understand potential risky behaviour if you want to thrive or bring in investment. Experience is key, and if you don’t have the requisite knowledge enlist the help of someone who does. A mentor may be only too willing to provide wisdom, while a board of advisors comprising experts in the industry who are given stock options in the company will have strong reasons to see the project flourish.

Business team members teamworking and collaborating

Another wise plan is to secure ‘beta customers’, who can test the product in the early stages and give honest, valuable feedback before it has been officially launched. These should not be friends or relatives, but outsiders who will provide opinion on the likelihood that your idea will succeed. If the feedback is particularly scathing, you can make adjustments or even shelve the idea completely before you lose substantial amounts of money.

Things to ponder

Eliminating risk completely is impossible, especially if your product is dependent on the financial markets or trends. If one reverses eight years back to the financial carnage of 2008 we see that giants such as Northern Rock and Lehman Brothers were taken down, sucking small businesses with them that had no chance of surviving. And, worryingly, Mens News Daily reports that 27 major global stock markets have fallen by more than 10 per cent from their peaks set earlier this year, implying more global stock market turmoil could be on the way.

Risk management is a science, a discipline, a knowledge and a chance. However, with knowledge and contact with the right people, allied to fortune and a lot of hard work, one can drive a successful business.