Facebook founder, Mark Zuckerberg once said, “The biggest risk is not taking any risk. In a world that’s constantly changing, the only strategy that’s guaranteed to fail is not taking risks.” The truth is, risk is inevitable, and you can’t escape it. So the only logical solution is to learn how to manage risk properly.
Risk management is the art of dealing with the risks associated with business decisions, in an effective manner. It is using proven strategies to identify the most promising options and minimizing any chances of failure.
While yes, everything contains a certain level of risk, like when you first learn how to ride a bicycle, or when you need to invest into your education. On some level you have already accepted that there is an inherent risk involved, but still you eventually take the leap and make the choice to do it anyway. Risk can be good, it keeps you focused and it can pay off big time if you know how to move forward while managing it in the right way.
Risk-management and prevention
When you are running a business or doing a project, you will find that these risks come in all shapes and sizes. Some you will be aware of, and some are going to be surprises that you will have to react to at a moment’s notice. As a smart entrepreneur, you need to expect these risks and don’t let them overwhelm you. You need to be disciplined, and stick to a strict set of rules which you use to make your decisions. Emotion needs to be disregarded, as it can mislead you.
In this article we will discuss the top four ways to help you manage risk. This is because when you have limited resources and capital, learning how to manage risk must be a top priority:
#1 Be conscious of the risk
A common mistake novice business owners make is they try to ignore their risks or downplay, as a way to cope with stress. This is a sure way to fail, as you should always have a rational paranoia about failure. Be conscious of your risks, know that they are there so that you are always operating from a position of control.
#2 Keep track of your cash flow
Right now how much money do you currently have available for this project? Are you confident that you can still make payroll if this does not work out? The ideal scenario would be that you have four to six months of funds saved up to cover all expenses as well as for unexpected scenarios which might occur. The bigger this amount, the more risk you can take. It is crucial to always be aware of the financial status that your company is in, know how much you can afford to lose and have a realistic contingency plan.
#3 Get legal
The honest truth is, no matter what type of business you’re running, you will not be able to grow and succeed unless you have access to sound legal advice every step of the way. Our recommendation would be to hire a CPA, form an LLC if you haven’t already, because it limits all liabilities to the company, rather than having your personal finances at stake.
On top of that, always have a trusted attorney to review all contracts. Yes, it is quite expensive but you cannot afford not to protect yourself. Chances are, in the future you will be glad that you had the foresight to seek the advice of professionals. It may feel like unnecessary expenses now, but it pays off massively if something we’re to go wrong.
#4 Avoid commitment
Until your business is firmly established, the best form of operation is to be nimble so that you can make quick adjustments, it becomes much more difficult once you have sunk money into large ventures. Understand that no matter how safe you feel, clients can change and projects can go pear shaped very quickly. Buying an office building can be a detriment if you suddenly need to adapt to a new market. Whatever you do, just be cautious about committing to anything that could potentially tie up your company’s finances, before you have thoroughly investigated it.
Thank you for reading. If you stick to these 4 simple rules your chances of mismanaging risk will be much lower. If you would like to learn more, Imsimbi has one of the best risk management courses in South Africa. We hope you enjoyed this article, if so please share on social media and leave a comment to tell us your thoughts on risk management.
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