Business and risks go hand in hand and the trick is to learn how to manage them
Every business faces risks and the trick is learning how to manage them. And if you fail, your business could well go down the drain.
Small businesses are exposed to many risks, but the main ones are financial, safety, reputation and operations.
Many enterprises fail because owners lose sight of this risk or do not know how to manage finances. Financial risk includes cash flow, budget, meeting tax requirements, creditor and debtor management and payroll.
To avoid cash-flow problems, manufacture or buy stock according to demand. Consider customers' buying patterns to determine the stock you need or your manufacturing schedule.
If you are a manufacturer or provide a service, examine the costs of producing your product to create a balance between production costs and profit. Though you cannot always match production costs with profits, try to ensure that production costs do not lead to a loss or inadequate profit.
Always consider profit margins. This is the amount that remains after all costs, including deliveries and salaries, have been paid. Don't run your business at a loss. Profit should at least sustain the business and allow you to serve other clients. If not, look for a remedy. That does not mean you should overcharge, but don't undercharge. Your business must be able to sustain itself after a set time from inception.
Say you charge R100 to deliver or provide a service, but it costs you R90 for its production, including delivery. Your profit will only be R10. Such a small profit could mean you sometimes have to dig into your pocket to serve your other clients. The deeper you dig into your pocket, the more likely you will be running your business at a loss.
Production costs must not rise above your budget. If they do, you are likely to be undercharging or subsidising customers. You still have to meet obligations such as tax, and your creditors and suppliers will still be waiting to be paid.
Pay attention to the time you take to invoice or bill your debtors. If you don't manage your debtors book correctly and collect in time, you might end up not managing to pay your debts. You need to collect payments as soon as you can so you can pay your creditors and suppliers. It does not help to have a huge debtors' book if there is no money in your bank account. You need money to continue operating.
Ensure you deliver your product or service on time so that you are paid on time. Delivery to customers is as important as invoicing is to you. But make sure that what you deliver is satisfactory. Customers should have no cause to complain about the product or service, which might delay payment and put your reputation at stake.
Avoiding cash-flow problems means you have to deliver, collect debts, pay creditors or suppliers and staff, and still make profit.
Breaking even will not allow you to last in business. The break-even point is where sales equal the sum of purchases, operations, expenses and personal drawings. The business is not making profit, but neither is it losing money. You must make profits to survive in business.
The safety and security risk refers to the wellbeing of everyone associated with your business. This includes staff, clients or customers, and everyone who visits your business, such as sub-contractors.
The product or service you provide must comply with all the safety laws, so it must meet occupational health and safety standards. This risk includes the overall security of the business premises, its assets and people, trading information, intellectual property and technology.
Reputation risk considers threats to the reputation of the business, which results from the conduct of the business, staff and anyone associated with the business, as well as the product or service. Your reputation will also be at risk if you are unable to pay your bills and your staff.
Avoid doing anything that might harm the reputation of your business.