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Key Business Risks

Before the chips are down…

It is common for every entrepreneur to focus on sales, and it is rightly so because that is the soul of the business. When you make sales, many things tend to fall in place, all things being equal. Interestingly, growing revenue and in fact making profit does not necessarily mean the business is in good health, because success or failure of a business cannot be solely defined by just the current state, rather it is also about the sustainability of the business and its prospect to continue to grow and make significant strides towards its vision. This assessment is often a missing link for most business owners, whose self-assured hubris sometimes lead the business down the path of failure.
The fact of business failure is truly scary, especially in economies like Nigeria, where four out of every five small businesses fail within five years of operation. People say it is due to lack of access to capital, some say it is lack of experience and many others would say it is as a result of the “harsh” business environment. All of these may be true but really, they are manifestations of deeply-rooted problems, some of which are perhaps avoidable. So, before the chips are down, it is important to understand the domino factors that can fall the pack of cards, these are what finance experts call RISKS.

…let’s go through the key dominos

There are numerous risks facing businesses, some of them are generic and applicable to all businesses, irrespective of the sector or size of the enterprise, whilst some are remote and peculiar to the organisation, sector, or location in which the business operates. Often small business owners do not have control on the generic risks, because they are largely external, and while you may not be able to prevent it, early awareness can help you mitigate and better manage the impact. In fact, you may proactively turn them into opportunities and by so doing, a supposed risk becomes a lever for growth and a source of strength.
  1. Regulation and policies:
You must always be aware of the regulations guiding your business, including government policies that may positively or adversely affect your business. Many business owners think only those in the financial services sector need to be conscious of regulation or government policy but that is not true. A poultry farmer who fails to realise that prohibition of grain importation would have adverse effect on his/her production, loses sight of an important domino that may send the poultry parking because such would lead to scarcity and price inflation on feed, the main raw material for a poultry farm.
If you ought to obtain a license for your business, don’t wait until the authority clamps down on your business, there may be forbearance for those who have initiated the license application process when the authority strikes. Know what your rights are with the government and be aware of your duties, including taxes. If there are special incentives or grants for businesses like yours from the government or any non-government organisation, learn about it and don’t miss it because that may just be the difference that you need.
2. Business environment:
Be alert to your business environment. Know trends in interest rate, even if you do not have a loan. Be conscious of exchange rate, especially when your raw materials or other inputs are imported. Be aware of the sectors of the economy that are growing or lagging and find out what the driving forces or drags are, as the case may be. In fact, the knowledge of your business environment is so important in understanding your competition and even customers, so always be alert to what is happening in the economy. Equipped with this knowledge and many more on the trends in your business environment, you would be able to assess your products or services and of course understand where the business opportunities are.
3. Technology:
You may remember Blackberry; it was extremely popular at some point in time, and all of a sudden seems to have gone extinct – that once beloved global phone company. It is the same story for Nokia’s rise and fall. Worse still is Kodak and other film makers, who were wiped out of business by new technologies. You must keep pace with trends in new technology and be able to relate it to the future of your business. Doing this constantly helps you to identify new technologies you need to adopt to optimise your revenue or cost, improve product quality and service efficiency or indeed to keep the business alive.
With the rapid change in technology, you must keep pace, to ensure you are constantly ahead of the curve. Interestingly, constant technology shift has notable influence on rapidly changing consumer preferences, and of course you have to keep satisfying the customers and meeting their demand, if you must sustain and grow your business.
4. People risk:
It is always difficult for small businesses to attract talent, and when they ever do, there is often a key-man risks, as one person possibly combines the job description of three roles in an apparent attempt to manage the little human resources available. There is absolutely no problem with this, but every entrepreneur must be aware of the risks inherent in losing the best employees, especially those who know the trade secrets. Beyond the fact that the exit of such critical staff may disrupt the business, there is also the risk that such former employee may join competition, thereby putting the business at the risk of losing trade secrets to competitors. The cost of replacing a critical staff is often prohibitive. This is more important if you are a service-oriented business. Hence, you need to pay attention to salient issues that may affect your employee retention and ensure that they are well engaged.
Another dimension to people risk, is the operational risks that may arise from employee’s actions, including the risk that they commit fraud. So, you must put in place, relevant checks, and balance, otherwise called controls in finance, to mitigate the risk that any or some of the employees would commit fraud. Amongst several measures that can be used to prevent fraud, limit employees’ interaction with cash. If at all you permit two or more relations to work for you, never allow them to be in same and inter-related sections. For all sensitive roles, make sure, there is a maker-checker process in place to mitigate the risk of fraud, as such measures also help to reduce inadvertent errors.
5. Financial risk:
Nothing kills a business faster than to be cash-strapped. So, pay attention to your cashflow, especially if you sell on credit. It’s important to make sales, but it is more important to collect cash for the sales you make. When you sell on credit, you are technically lending money to the buyer of the goods and limiting the firepower of your capital base. So, if you must sell on credit, have clear terms, and only sell to those you are sure would pay as and when agreed. Be mindful of your profitability and never confuse sales or cashflow for profit. If you have a loan, be conscious on the cost, and review options on nairaCompare to see if you can negotiate better terms from your lender or refinance the loan at a much better term from alternative lenders.
Competition: Many small businesses are insensitive to their competition, neglecting the fact that their customers have options and can easily switch to the offerings of their competitors. Therefore, you must always be alive to what your competitors are doing to proactively find ways of outperforming them. You must study your competition and understand why some customers prefer their offerings over yours. It’s a continuous exercise that must keep you on your toes and the only way to prevent competition from sending you out of business, is to continuously refresh your offerings and services to meet if not surpass customers’ expectation.

Sometimes you need to raise capital and grow the business to be able to track these risks

One major challenge of small businesses is not about the awareness on the need to track these risks and mitigate them, it is more of the resources to do such. So, as you think of raising capital to grow your business to able to build resources to track and manage these risks, take advantage of nairaCompare in assessing alternative loans and make sure you take the right loan to grow your business.
#BUSINESSRISK #REGULATION #POLICY #TECHNOLOGYRISK #STARTUPCAPITAL

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