It is a very well known fact that running a business is not easy mainly because of the risk factors involved in it. The ever changing scenario puts a lot of pressure on entrepreneurs to improve their skills and battle risks at the same time.
Every business, big or small, faces risks that the entrepreneur usually has to face. The risk starts when you plan for a business and continues until it has completely ended with the severity and the degree of risk changing at regular intervals.
To be able to fight these risks in a better manner entrepreneurs should need to understand these factors first. In order to help you in this regard given below are ten of the most common risks that every entrepreneur faces with some simple ways to fight them off.
1. Competitive Risk
Competitive risk is the risk of a business facing competition from its rivals. Every business besides monopolies face competition because there are substitutes easily available in the market. New businesses have to face this risk to a higher degree because they face stiff competition from already established businesses. However, reputable businesses are not immune from this risk either.
In order to minimize this risk one must run a proper SWOT analysis and come with strategies to counter attacks from competition.
2. Technological Risk
Thanks to the changing times every business has to face technological risk. This includes change in technology that are taking place at a rapid pace. What’s in today goes obsolete tomorrow. It is difficult for entrepreneurs to be able to gauge the future properly.
The solution in this regard is not to plan for today but tomorrow so that you are ready with the new technology by the time it goes huge.
3. Political and Legal Risk
This risk is everywhere especially in the case of businesses that run in uncertain environments. This includes the changing political scenario including the changes in laws and regulations. Multinationals have to face this risk to a great degree because they do not only have to worry about the political and legal situation of their country but of every country they have a business in.
The right solution in this regard is to have flexible policies so that changes can be incorporated just in case the government changes any of its policies.
4. Economical Risk
A good example of this type of risk is the recent economic slump that was seen globally. This risk includes the changes in the cycle that includes periods of high prosperity (boom) and recession. These cannot be predicted correctly and must be taken into account at the planning stage.
5. Financial Risk
Financial risk is the risk of a business running out of finances. Entrepreneurs need to have a good financial sense in order to run a business successfully. They need to manage cash flow, predict demand and supply so that financial decisions can be taken properly.
Every decision, big or small, has a significant impact on profit and a company’s financial position which is why it is very important to be careful.
6. Employee Risk
The human capital is one of the most important things for a business to be successful. It is the duty of the entrepreneurs to build an impressive team of managers who can lead the employees in the right direction. No company can attain its goals without the support of its employees that act as the backbone.
There is always the risk of a key employee deciding to switch or not reporting to work on an important day. Some of the risk factors related to the employees can be controlled, such as many employees may be convinced from jumping ship by motivating them in several ways including a pay raise. However, certain problems such as a low output employee cannot be solved easily.
7. Strategic Risk
Strategic risk is the risk of a strategy failing due to one reason or another. Since companies plan keeping the future in mind there is always a chance of things going wrong as the future is uncertain and cannot be predicted correctly. The strategy they apply cannot be taken back which it why it needs to be sound.
Entrepreneurs need to have foresight so that they can plan properly. Plus, an entrepreneur may not have knowledge about every aspect of a business; hence he or she should seek help from relevant departments.
8. Health and Safety Risk
This risk involves how a business functions. It is the duty of the businessperson to provide the right environment to its employees so that they do not have to face any kind of health hazard. There are employee and labor laws that clearly highlight the rules regarding everything from having a canteen to a bathroom etc.
If a company fails to practice this then it may lead to injured workforce that may trigger a lawsuit for the company.
9. Environmental Risk
Risks that are associated with the environment are called environmental risks. Most of the risks that fall under this category cannot be controlled. These include natural disasters like flood and drought. Plus, a lack of natural resources also falls under this category.
The best option to overcome this risk factor is to do proper research before opening a business.
10. Operational Risk
The risk associated with administrative procedures is called operational risk. This includes outdated IT systems, poor supply chain and disorganized record keeping. These problems result in big issues for the company as having wrong records would not give a true picture of the company’s growth and may lead to poor decisions.
It is important for businesses to run continuous checks and keep an eye on everything to ensure that this risk factor is minimized.
It must be understood that risk is a part of a business. It cannot be completely removed. However, every entrepreneur should take measures to minimize the damage. The key lies in being careful and making decisions with care.