Starting a business can be an exciting and exhilarating endeavor
Starting a business can be an exciting and exhilarating endeavor. The prospects of establishing a company that not only could be a source of income and revenue for yourself but also many other employees, however, is a process with several pitfalls. As is with any investment, starting a business requires capital which, if not well run and managed, could lead to a zero return of investment if not outright losses. So how does one go about establishing a business? This paper shall proceed with the purpose of examining how a company starting can minimize risk.
Risk can be broadly defined as events during the undertakings of a business that creates uncertainty of the market’s set goals and objectives being achieved. Risk can be manifested in positive or negative ways. It may also be constituted of a deviation(s) from the projected or predicted expectations and outcomes. The ability to identify and manage risks is imperative to any starting business as it enables the proprietor to have a sort of upper hand in control and even prevention of the reparations that come with the identified risk.
Before this paper can discuss how starting a business can minimize risk, it must digress a bit into identifying risks. It is only through understanding the risk that a company can understand how to prevent and reduce it if not do away with it altogether. As such, there are four categories of business risks on a broad scale. These include the following. Strategic risks such as the entry of a new competitor into the market tend to rear their heads more often than not. Compliance risks are constituted of the introduction of additional legislation and rules governing the conduct of business. They may have the effect of rendering a business illegal or non-compliant. Financial risks can come in the form of loans taken by the company experiencing an increase in the interest rates or a customer failing to meet their financial obligations to the business, a classic case of bad debt. Lastly, operational risks may include destruction or even damage to chief business assets and equipment. They have the effect of altering the cost of doing business if not rendering business operations ineffective.
After the risk identification process, it is paramount for the new organization to carry out a risk assessment. Risk assessment is the process of prioritizing the risk according to the probability of their occurrence. Most organizations use a risk assessment matrix to determine the likelihood and consequences of the risk. The chances are then evaluated and ranked according to their magnitude. Therefore deciding whether the risk is acceptable warrants treatment. A risk response plan is then stipulated to treat the highly rated risks. A risk register is used to monitor, track, and review the risk.
Secondly, to mitigate risks, a new business can invest in insurance. Insurance is a contract that cushions against damage or loss of property in an unforeseeable risk. Identifying and managing specific risks can significantly reduce the far-reaching consequences of a chance that would have a devastating impact on the business. Threats such as fraud and embezzlement have a high magnitude, and thus insurance companies underwrite a cash bond to provide coverage if they occur. Also, engaging the services of a risk management consultant will help to mitigate organizational risks. A periodic review of insurance coverage should be done and upgraded or downgraded accordingly.
Prevention is better than cure. New organizations that are starting should strive to prevent the risks from occurring. Risk prevention can be achieved through training- the Organisation’s employees have sufficient instructions on what to do in case the risk occurs. For instance, Organisations can carry out drills on how employees should react in case of a fire. Continues maintenance of equipment and the organizational premises helps to reduce accidents and thus to prevent risks.
Moreover, organizations should have a culture of conducting background checks and safety checks periodically to prevent risks. A risk manager should be appointed to manage the risks, and a risk committee to monitor and evaluate the risk and give feedback to the risk manager. A periodic review of potential hazards is conducted, and the problems addressed immediately.
Research in risk management is significant because it helps the business plan for the future by taking care of its risks. A study conducted efficiently and effectively helps an organization to be viable in the industry. Undertaking research helps the company to avoid failure. For instance, a small business can know how they are performing in the market through client feedback. The information will help them know whether to continue manufacturing or change their strategy, thus avoiding the risk of loss. Through research, an organization is informed of genuine suppliers with good credit score, therefore, minimizing damage. Research for the right employees is also helpful in mitigating risks. Through research, the human resource team recruits personnel with the right skills and attitude and who will improve the company’s output, thereby minimizing risks.
Research on risk management practices will help in reducing risk.
- Ascertaining the risk- This is identifying the risk through the use of a risk register.
- Risk analysis- the probability of the risk to reoccur is considered.
- Evaluating the risk- this is the ranking of the risks by determining the consequence of the risk. If the risk is severe, then it will warrant treatment; if not, it can be overlooked.
- Treat the risk- risk mitigation models are created in order to bring the risk to an acceptable level.
- Monitoring and evaluating risk- the risk is monitored and reviewed through the risk management register, and various improvement measured put in place.