5 Risk Analysis Tips for New Businesses

The failure of many new businesses is due to neglect of risk management. Managing risk means thinking of the things that could go wrong and ways to reduce those risks without overspending. You want to classify risks based on two factors: the likelihood of them happening and the potential damage they may do. Below are some tips to follow. You may also want to visit a company like CreditRiskMonitor for help.

Prioritize Risks

You must categorize your risks in increasing severity so you know where to apply your resources. Acceptable risk is where both the chance of occurrence and consequences are quite minor or easily remedied, such as your delivery van running out of gas. Risks you can dismiss as mere nuisances are things that are likely to go wrong but not very impactful, such as running out of toner. Some serious risks like injuries or fire can be covered by insurance, so the potential damage is reduced. Other risks, however, are a normal part of business yet can have disastrous consequences if there’s no contingency plan.

Market Risk

Every time you introduce innovation, such as new products, styles, or bold advertising campaigns, you run the risk that the consumer will reject the changes. The failure of “New Coke” is one famous example. However, failure to innovate leads to falling behind the competition and shrinking market share. Successful companies mitigate the risk by doing extensive market research. This takes time and money, but it’s better than investing heavily in something nobody wants.

Operational Risk

Starting a company with a good product or service seems promising, but if it can’t be done profitably, it’s doomed to fail. You have to also master the business processes involved. Your technology, employee management, efficiency, and much more are critical to success. Poor organization and wasteful practices bleed away your profits day after day. Start with building the right leadership team, and present them with a constant challenge to suggest improvements.

Financial Risk

Running out of cash almost always brings an end to your dreams. Non-paying customers, soaring interest rates, or spikes in material costs could pose credit risks. Especially if your business is new, lenders and investors are more likely to turn you down. Make building your credit a priority. One solution is financial statement outsourcing for risk analysis. Then you know where you need to focus for greater financial stability.

Competitive Risk

Your competitors will do anything to protect their own market. This can include poaching clients or employees, stealing ideas, or price wars. Rivals might do anything from upping marketing budgets to outright slander. Know the strengths you can capitalize on and the weaknesses you need to defend. File patents or trademarks on your intellectual property. Spend some time policing your online reputation, and take appropriate steps to minimize the damage.

You’ll never be able to plan for everything, so prioritize. Whatever your plans to mitigate your major risks are, they should be regularly reviewed and updated.

Guest author, Dixie Somers, is a freelance writer and blogger for business, home, and family niches. Dixie lives in Phoenix, Arizona, and is the proud mother of three beautiful girls and wife to a wonderful husband.

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