Risk exists in every business effort. Entrepreneurs may succeed or fail in their endeavours since starting and running a firm is a titanic task. However, by using the proper risk management techniques, organisations can minimise their exposure to risk and boost productivity and revenues.
Understanding business risks
Every business is set up to make an impact. The process of business set-up enables the entrepreneur to identify any problems and develop solutions to mitigate them. Uber, for example, saw how people find it difficult to be connected to convenient transportation (taxis or ‘dropping’). They proceeded to set up technologies that “match consumers looking for rides, food delivery, or shipping with people selling those services”. The company announced a net income of US$892million in 2021 – a feat that has been credited to Uber identifying its risks and working to reduce them to the barest minimum.
Risks to a business can lower its profits or cause it to fail. Anything that threatens a company’s ability to achieve its financial goals is considered a business risk.
The executive level of management’s definition of enterprise risk management is the identification, analysis and management of the exposures that a business face. This entails examining the company’s vulnerabilities to financial, credit and fraud risks, as well as to strategic and operational issues.
Startup Ecosystem in Ghana
Ghana is one of the leading countries that promotes business startups and investments. Taking pride in its socio-economic and political stability, the country is a safe-haven for nurturing and developing business ideas. In 2022, the country was ranked 82nd out of 100 countries in the startup ecosystem index of Africa.
However, startups may continue to face various levels of risk due to recent global financial impacts on the economy. Access to capital is difficult, and government has been compelled to act to support the economy. Measures put in place to support businesses include reducing imports of commodities such as poultry, rice, and other edibles. In addition, companies are empowered to produce in Ghana at sufficient quantities. This provides an opportunity for startups to take advantage of these measures to increase productivity.
The 4 risk management to-dos
- Identify the risk
The ability of startups to proactively identify various risks in their business is a key factor in their success and profits. It requires progressive introspection and projections to come up with the right solutions or mitigation strategies. Risks can come in the form of financial, operational, market exposure, reputational, legal and technological factors.
Businesses expose themselves to financial risks by incurring more debt or investing in upcoming products with a poor market. The most reliable source of initial capital for a startup is family and friends, who offer investments with very low or no interest and flexible repayment terms. Managing your expenses requires a comprehensive financial plan.
Startups should strive for operational efficiency in order to minimise their business risks in 2023. The cost of doing business is high, and reducing operational risks can save businesses a fortune. This can be achieved by harnessing digital tools such as Google Office Suites, which provide integrated cloud solutions and collaborations. This will contribute significantly to reducing risks, as operations of the business will be secured and protected from cyber-attacks.
Operational efficiencies also require putting the business in order legally. You should consult a law firm or legal-aid to help you understand and draft all your contracts. Additionally, they can assist startup companies in becoming compliant with operational standardisation, filing tax returns on a regular basis, etc. Failure to comply with legal demands may result in punitive financial risk under the laws of Ghana.
2. Risk communication
Every business is susceptible to risks; however, what happens when the unforeseen occurs? Effective communication is essential for any effective risk management strategy. Good risk communication helps your audience understand the situation and empathise with you. Effective risk communication involves clearly and accurately communicating information about the risk.
In addition, it involves actively listening to and addressing the concerns of individuals or groups affected by the risk. The goal of risk communication is to help people understand and manage risk, and make informed decisions about how to protect themselves and their communities from harm.
A clear example is how Marwako Fast Food used risk communication to win back customers. In July 2022, the restaurant was found guilty of food poisoning by the Food and Drugs Authority. As soon as the restaurant admitted the error, it began communicating on social media about steps being taken to comply with FDA regulations. Corrective preventive actions (CAPAs) are continually updated with FDA guidance. Marwako gained its customers back after the FDA lifted the suspension on some selected branches.
3. Monitoring and evaluation
Monitoring and evaluation (M&E) are critical components of risk management, as they help to assess the effectiveness of risk management strategies and identify areas for improvement. Being able to achieve effective monitoring and evaluation will require continuous data collection and feedback from clients and the market to make informed decisions. In addition to helping you understand your business trends, it allows you to adjust where necessary.
Together, monitoring and evaluation provide feedback on the risk management process. This feedback can be used to make decisions about how to adapt and improve the risk management strategy for future risks.
4. Speak to the experts
Risk management experts are always needed to support your business’s risk management process. The experts are to holistically assess the situation and provide tailor-made solutions. Government has set up business development resource centres in various districts and municipalities nationwide to provide expert support for startups. Also, there are private sector risk management firms and consultants who support startups to thrive on their business journeys.
Conclusion
Since risk management is an ongoing process, companies must develop plans to mitigate potential hazards. Identifying the many risks that businesses face, including operational, credit, legal and financial threats, is the first step in decreasing business risk. Startups are also urged to use risk communication as part of their customer-retention strategies during times of crisis. In order to ensure effectiveness and performance, risk management initiatives also need to be regularly monitored and assessed.
>>>the writer is a Business Development Consultant with Blackchester Ltd. Email: [email protected]
