How can a small business reduce internal and external risks?
Our economy is largely dependent on small businesses as these companies work in producing services or raw material for big brands. Running a business is not a child’s play. A lot of hard work and sweat goes into building a secure business entity. There can be many risks in business, such as the risk of capital, the right manpower, economic slowdown, and even natural calamity. So before setting up a business, every company should pen down the proper planning of their workflow, which affects overall operations because of these external and internal risks. Not doing this could bring the business to a gradual decline.
Factors that affect small businesses to survive in the market:
Internal Risk is controllable in nature which derives from an improper execution of business plans. There are always some factors leading to internal risk in any company, so how can one overcome it?
1. Risk of Capital
For a small business entity, it is not easy to survive in a highly competitive environment. The risk of going out of business is always at stake.
- Regular in-flow of funds either quarterly or half-yearly can help the business be ready for any unfortunate situations and to overcome the risk of losing capital.
Finding the right person for the right job is a lifeline for all business ventures. If the key employees leave or cannot perform their duties, then your business could fail, particularly in small businesses that cannot offer attractive salaries and job stability.
- Small businesses don’t require highly experienced people on the job and there is always a group of people who want to work for companies where they can show their creativity and passion. The right HR team can help businesses overcome the risk of finding the right people.
3. Product/Service Quality Issue
Small businesses cannot offer a low price for their products or services due to high operating costs. Any compromise in quality can lead to a setback for the business.
- To overcome business risks due to quality issues, a strong QC (Quality Check) team should be kept in place to make sure that everything goes as per plan.
Debt can make the deepest holes in the balance sheet of small businesses. It should be very minimal if not zero, to keep going with their operations.
- Instead, they should focus more on profitability than on volume, which helps them to avoid taking any loans from external sources and create risk in business.
5. Cybersecurity risk
The best organizations today can bear the cost of the best guards. As these bigger ventures show signs of improvement at protecting against cybercrime, cybercriminals threaten to descend on the business’s natural way of life and also tends to focus on private ventures who can't manage the cost of complex security systems. Today, private ventures are the favored focus for cybercriminals.
- At the point when income is restricted, spending on security seems like a risk in business. Acquiring cyber risk and information break protection inclusion, such as taking safeguarding measures to diminish Internet-based exposures can help you avoid falling prey to cybercriminals.
6. Legal risk
Numerous first-time entrepreneurs might not have the skill to assess everything about each agreement they need to sign or they may ignore something accidentally. These oversights can prompt issues in the near future. Legitimate cost protection can spare you from any extra or unforeseen dangers from providers or clients. This straightforward and simple choice can eventually help you save legal expenses and money spent on protection inclusion.
- Protection or insurance is a key part of every small business strategy. By understanding these dangers for independent ventures, you can make strides at an early stage to deal with the above dangers and secure your property and assets against catastrophes.
Businesses have no control over external business risk factors. Small businesses should keep this in mind at the time of planning and setting objectives to avoid the risk in business.
Industry leaders can play with small businesses to keep them out by eating their share of the market. They can reduce the prices of their products or services to make it more affordable for customers; any small business cannot afford to get into a price fight with these big giants.
- To overcome this risk in business, one should always have a USP (Unique Selling Proposition), which is not possible for competitors to match.
2. Government Policy
Any change in Government policy can shut the small business venture overnight. An automobile engine part manufacturer won’t be getting any business if the government bans the kind of engine this business was manufacturing.
- It is not easy, but diversification in more than one industry can help overcome the risk of change in government policy.
3. Economic Slowdown
Nobody was prepared for COVID-19. After this outbreak, the most affected industries were Hospitality and Travel. Consumption became very low in these cases and when there is no or very less demand, businesses cannot make any revenues.
- To overcome these risks in businesses, one should always keep emergency funds ready for bad times.
4. Natural Calamity
Accidental fires, earthquakes, and tsunamis can happen without any warning. At times, the losses could be beyond recovery if a small business entity has not prepared itself for these situations.
- A good insurance plan can help to avoid any such losses.
Therefore, in every business which faces risk, there is always a silver lining that offers hope and helps you to overcome it. One should be motivated and must have a positive attitude towards every situation that can impact you in the future.