Being in business is all about managing risk. It’s the reason why many prefer the relative safety of a paycheck, but as most business owners will tell you, the reward can be worth the risk. The freedom to choose your working lifestyle is a big part of the appeal of self employment, as is the potential to control the return you can get from owning and operating your own business.
Owners need a return on their capital that allows for this risk factor, however regardless of the return you are gaining it is in the best interest of all business owners to not only maximize their return but minimize the risks they must take to earn that return.
Controlling your business risk starts with identifying what those risks are so you can put in place a suitable strategy to manage them. Here are a few of the biggest factors that we’ve seen undo businesses’ success:
1. Heavy dependency on one or two clients. Although retail is usually a game of dealing with the masses the real question here is who pays the bill? We have seen clients who have been reliant on receiving payment from a buying co-operative of members who have lost their supply deal with the co-op and seen their sales fall by 20% almost overnight.
2. Heavy dependency on one or two vendors. Who are your most important suppliers? A printout of sales by supplier will soon show how much business you get from the top two or three. If they no longer supplied you would it affect your business?
3. Generating too many sales from too few products. The best example of this in recent years has been the bead market. A reliance on bead product has been an example of both point 2 and point 3 and has left some stores struggling when their sales in this area have dried up.
4. Generating too many sales from one staff member. Who is your number 1 salesperson? If you’re not sure a quick printout by salesperson will show you who leads in total sales and big ticket items. If you have a leading salesperson, could you survive if they left? What impact would their departure have on your business? If you are the leading salesperson then…
5. Risk of injury or illness to the owner. What happens when you can no longer perform your job or are incapacitated, even temporarily? Do you have a plan in place to run both the front of the store and back office in your absence? Who can step into the breach if you’re not there?
6. Competitive risk. What competition can be a threat to you? Has anything changed in their circumstances, e.g. a new owner or manager, that might impact your sales going forward? Are there bigger players who may come to town that could impact your performance such as a national chain currently not in your area?
7. Theft, fire and other risk. If your business was hit with a disaster could it bounce back? If you were sued would it be the end of your business?
8. Staff embezzlement. Do you have systems in place that can pick up on any fraud being carried out? Are you managing this risk?
9. …or setting up competition? Could your staff leave tomorrow and take other staff or customers with them? I have seen a business with one watchmaker who has had the watchmaker leave and take 80% of the watch repair business with them. Could your business handle this happening?
All of these risks have an ability to cause major havoc to a business. Many are manageable through contracts and insurance, however there are others that are a part of business that can be outside of your control. Despite this, recognizing the risk and having a plan in place with how you would cope if it happens will go a long way towards ensuring your business can continue as smoothly as possible should a disaster occur. If you can put a plan in place you will sleep much easier should one of these factors eventuate.