How are you managing your business risk?

How are you managing your business risk?

Starting and operating a small business is a risky proposition.

When starting out, you’re perhaps leaving the stability of full time employment to start a venture you’ve always had a passion for, with no guarantee that you’ll able sustain the lifestyle you perhaps had whilst working full time. You have debts to pay, and mouths to feed.



There are many sources of risk within every business, regardless of what industry you operate in. When starting your business, it’s important you understand there are certain risks you can control and other events you can’t. Internal risks may be around policies and procedures, employee risks, or customer risks, whereas external risks may involve broader industry risks, changes in government legislation affecting your product or service offering, or increased competition.


External risks cannot be controlled directly by you, however you can put safeguards in place to minimise the impacts some of these potential events may have on your business. Internal risks can be directly controlled and managed to reduce potential adverse impacts. But how do you do this, and where do you start?


If you ask any business owner, there is a common theme that risk management is very low on the priority list, why should we worry about risk when we need to grow, develop and promote your product or service offering, build our customer list, and manage cash flow? The failure to acknowledge and act upon the fact that no business is risk free, and put a structured approach in place to minimise the impact of certain events affecting your business are key contributors to business failure.



Minimising business risk

Identifying and managing risk is an integral component of building a successful small business. It would be impossible to remove risk from all situations but you can take steps to remove or reduce your business risk. The process for minimising business risk is graphically illustrated below.


  1. Risk Identification
  2. Assessing level of impact of risk occurrence
  3. Prioritise risks to be actioned
  4. Develop risk minimisation/mitigation strategies to address prioritised risks
  5. Implement and monitor strategies identified
  6. Continual monitoring of ongoing risks


To minimise business risk, small business owners need to implement effective risk management strategies into their business. This is an often difficult process of identifying what is a possible risk event, assessing the level of impact of the event occurring, and then designing a strategy to minimise, manage or remove the risk, the latter being the more preferred. A key step often missed in the risk management process is to continually monitor the strategies you have designed. By “testing” these strategies, you are able to determine whether they are able to hold up and mitigate any risks should they eventuate.


Here’s an example of how risk management strategies work for small businesses, using an all too familiar example of small business owners being the only ones managing their business.

Example AA small business owner runs a small fruit and veg retail outlet, employing 5 staff. They do all the customer orders, manage the business’ cash flow, manage staff payroll, and ensure all workplace safety is adequately managed.

Working through the risk management process above:

  1. Risk identification – One major risk here is that does the business have adequate insurance coverage should something happen to the business or the owner of the business to ensure the business continues to operate.
  2. Level of impact – The impact of not having adequate insurance cover would be rated as HIGH
  3. Priority – HIGH
  4. Risk management strategy – Review current insurance cover with perhaps use of external consultant, and adjust accordingly. Some of the types of insurance often needing consideration are listed in the table below:

  5. Take out identified insurance as required
  6. Annually review insurance cover depending on what activities have happened throughout the business over the past year, and are anticipated to occur in the next 12 months.



Outsource your risk management strategy

The risk management process is time consuming and lengthy, but is critical to ensuring business survival. We know that small business owners are time poor, therefore engaging an external consultant to assist you in developing your risk management may be worth considering.

Your trusted advisor is best positioned to provide you with risk management advice. Every small business is different. That’s why discussing your requirements with a specialist will help you develop a tailored risk management strategy for your business ensuring you are well on the way to building a business that actively and successfully manages its business risks and gives itself the best chance of succeeding in its core business strategy.

At Thnk Advisory we have a passion for assisting business owners (and those planning to become business owners) plan and achieve their business goals through a structured process of continual communication.

Josh Walding – Director

Contact us to grow your business