A startup faces greater risks than an established business. Risk management is the process of identifying potential risks and taking steps to minimize their impact.
Starting a new business is exciting. Filled with positive energy, you tackle your startup with enthusiasm. That’s a great way to begin, but to make sure your business succeeds, you also have to step back and consider the risks. If you take a positive approach to risk management, you will accomplish two things. First, your proactive approach will bring all the members of your team together to ensure your vision of success becomes a reality. Secondly, your risk management program will prevent you from being blindsided when a risk becomes a reality.
Prioritizing Your Startup Risks
You don’t want to spend your working days analyzing and managing every potential risk your company faces, but you do want to identify them and know which ones have the highest priority:
- Low-level risks are those that are unlikely to happen and if they do, they won’t have a major effect on your productivity or success.
- Mid-level risks are those that are unlikely to occur but if they do, will have a major impact on your business.
- High-level risks are the risks you need to constantly stay abreast of.
If you work in an area where there has never been an electrical failure, you probably don’t need to give high priority to installing a backup generator. Natural disasters are rare, but they do occur, so you need to take steps to minimize the risk to your business in the event of a disaster. Insurance and a backup system for your data are two steps you can take to help protect your business in case of disaster.
Risk Management Strategies
After you’ve prioritized your risks, you need to develop strategies to manage them. Being fully insured is an example of a passive risk management strategy. Other risks require ongoing active strategies. Most of your high-level risks fall under this category. Some high-level risks include:
- Competitors: You will always have competitors who will be trying to get the edge over you. In order to stay on top, you need to constantly monitor their activities and find a way to get the edge over them.
- The Market: In our ever-changing business environment, market demands are always in flux. Your product or service may be hot today, but lukewarm tomorrow. Keep abreast of market changes and adjust your business accordingly.
- Capital: If you don’t have enough capital to see you through business slumps or to spend on marketing or research, you risk losing everything.
- The Economy: Every economy goes through cycles. If you start your company in a boom cycle, don’t make the mistake of thinking the boom will last forever. Prepare yourself and find out how to weather the economic storms.
These are just a few general examples. Your high-level risks and risk management strategies will depend on the nature of your business.
Statistically, startups have more high-level risks than established companies. A startup has to get its foot in the market door and needs to be on top of its game from day one. Established businesses can’t afford to relax, but have the advantages of already having a presence in the market and proven risk management programs in place.
In our fast-paced world, every business needs to be streamlined and efficient. Streamlining your everyday business practices is one high-level risk management strategy you can’t afford to ignore. QuickBooks gives you all the tools and information you need to keep your business running smoothly and efficiently.