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Risks for Small Businesses: What to Look for and How to Deal with Them

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Risks for Small Businesses: What to Look for and How to Deal with Them

What’s great about small businesses is that they’re able to cater to niches that big corporations often overlook. And because they’re more accessible to their customers, they can build a more personal connection with them, which makes for lasting success.

That’s why big companies spend a lot of money just to replicate the kind of relationship small businesses have with their customers.

SMEs are also able to change plans or strategies much quicker than their larger competitors. This is advantageous for crisis management and minimizing risks. However, small- to medium-sized businesses do not have the extensive resources or knowledge-based systems that big corporations have.

Because of this, they’re more vulnerable to risks compared to their larger competitors. And so SMEs must have mitigation strategies to protect themselves from any risks.

If you own a startup or a small- to medium-sized business, you must be aware of the possible risks that your business might encounter so that you can be better prepared when they come your way.

Here are the biggest 3 risks for small businesses:

What are the top 3 biggest risks for small business?

Financial risk

Financial risk refers to the possibility of losing large amounts of money in a business venture or an investment.

It usually comes in many forms like suppliers who fail to ship inventory, customers who can’t pay for their purchases, increase in rent, big interests, recession, etc.

So when you add this to the fact that most people use their life savings, 401k, or take out huge loans just to put up the business they’ve always dreamed of, it’s no wonder why a lot of small businesses fail after their few years.

To make sure that your small business thrives and survives in this digital era, you must take into account every possible financial risk your business will likely encounter.

Careful preparation and planning as well as taking a proactive approach will allow you to mitigate financial risks or reduce their impact on your business.

What are the signs that you might be facing financial risks?

  • You don’t have enough funds to pay your debts and other responsibilities
  • Changes in market rates, interest expense, or interest income are affecting your financial performance
  • Change in price of a commodity is affecting your financial performance

How do you mitigate this risk?

Effective cash flow management is one of the best ways to mitigate financial risks.

Securing your money from the very beginning guarantees that you have the means to sustain your daily operation, pay employees, and invest in digital marketing for your business’ growth.

It also prevents you from forgetting about outstanding invoices and receivables that are on your books but are not in the bank.

Here are tips that will help you secure and protect your cash flow:

  • Make your collection periods shorter
  • Keep track of overdue accounts or contacts regularly
  • Collect your money proactively
  • Sort all the outstanding accounts before you start collecting
  • Discourage late payments by structuring your contracts and invoices to be paid upon delivery

You should also consider using technology to help store your data and keep track of your cash flow more effectively. Automating will allow you to pull out data and create reports instantly without having to go through every folder on your filing cabinet.

You can also use this data to help you manage your company better and scale your operations.

Strategic risks

Strategic risks refer to the risks a company takes that can affect its overall strategy and lead to a major loss. These risks usually have something to do with technological changes, shifts in consumer preferences, competitive pressure, legal and regulatory changes, and more.

How can you identify strategic risk?

  • You need to have an in-depth understanding of your company’s operating market as well as its social, legal, political, and cultural environment
  • You also need to have intimate knowledge about your target audience and your competitors
  • You need to have a clear understanding of what your company’s core strategic goals are, from beginning to end

To do this, you’ll have to deal with big data analytics, which can take time and money, but it’s worth it.  You’ll be able to gain deep insights and make accurate predictions about strategic risks, which can empower you to develop safeguards that promote business success.

How do you mitigate strategic risks?

  • Perform a SWOT analysis to understand where you are right now
  • Clearly define what your business goals are and the strategies you’ll use to help you achieve them
  • Define your KPIs
  • Identify the different factors and elements that can affect your company’s performance in the future
  • Use key risk indicators (KRIs) to gauge the challenges you’re facing or you’ll face
  • Monitor your KPIs and KRIs to make sure that you stay on track towards achieving your goals

Reputation risk

Reputation risk refers to the potential loss of financial capital, existing and potential customers, and market share as a result of negative publicity.

Your reputation is an invaluable asset that you need to invest in and protect to help your business grow.

Having a strong and positive reputation adds value to your company. It helps establish trust, draw customers in, distinguishes your business from competitors, and improves your SEO ranking.

How can you identify reputation risk?

Reputation risk is created when you overpromise and underdeliver.

  • Identify what your customers expect from your company
  • Measure your performance to identify if you were able to meet their expectations

How do you mitigate this risk?

  • Make sure you’re able to deliver in what you promise
  • Establish your social presence
  • Monitor online conversations about your brand and participate
  • Respond to both negative and positive reviews respectfully and positively
  • Create response and contingency plans

In this digital era, where unhappy customers can easily damage your reputation by leaving poor ratings and negative reviews, you must manage your online reputation.

Doing this will help preserve your brand image and protect your company from any damages that bad publicity might incur.

Not all risks are worth taking

Risks for small businesses can be mitigated with good risk management. Having the right data can help you make better decisions that will protect the reputation of your company, make your business more profitable, and secure the longevity of your organization!


Guest Author

Shay Berman is the founder and president of Digital Resource, a full-service digital marketing agency located in South Florida, USA. Shay’s clear-cut approach to internet marketing has driven his clients’ businesses to new heights and landed Digital Resource on the Inc. 500 list of America’s fastest-growing private companies in the U.S. for two consecutive years.

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