Managing risk

DLA Partners Luxury Property Services in Natai since 2005 Risk

tests a business’s risk management processes, shining a spotlight on gaps and new risks to be managed. At this point in 2020 it’s time for a thorough review to identify areas for improvement to minimise the risk for business owners, as well as highlighting new opportunities.

Let’s look at poor debt collection as an example. This particular financial risk presents an opportunity to revamp the sales process to collect a deposit, perform credit checks on all customers, or to change the Terms of Trade. The risks associated with a downturn in sales may create an opportunity to diversify the sales model to include new customers, products, or an online offering.
While risks and opportunities exist throughout all departments of a business, it’s the responsibility of the directors to manage them. Small and medium-sized businesses are no different to publicly listed companies where the function of directors is to maximise shareholder value.

The key responsibilities of the director role include:
1. Setting the company’s vision and strategy.
2. Providing legal and fiscal oversight.
3. Making a plan for business growth.
4. Improving the business model.
5. Overseeing business performance.
6. Establishing the appropriate organisation structure to deliver on the above.

As well as maximising shareholder value, the above strategic responsibilities contribute to the overall risk management strategy for the business.

The best way to mitigate risk involves documenting and updating a plan. During an economic crisis, this plan may be a Business Continuity Plan. This is a plan to ensure that the business does not fail at the onset of the crisis. But you shouldn’t wait for a crisis before you create one.

As the business moves through harder times, a Business Recovery Plan is needed to capture ways to re-invent, innovate, and re-engineer to adapt the business to new market conditions. The Business Recovery Plan has a more short-term focus, concentrating on how the business will trade through the crisis and emerge sustainably on the other side. This Plan is detailed, specific, and more focused on operational aspects of the business.

Looking at each department of the business, the Recovery Plan sets detailed goals and actions based on the risks and opportunities that it addresses. This process ensures the business can improve its ability to minimise risk while maximising profitability and cashflow.
When we find our new ‘normal’, we can revert back to annual Business Planning. The Business Plan has a more long-term focus and is aimed at a higher, more strategic and less operational level.

No matter what the plan, the directors need to ensure there are regular meetings to discuss and monitor progress. To ensure the plan is executed and updated, have someone provide an independent voice of accountability. This person can add their expertise and experience in a way that gives your business the best opportunity to achieve success during and beyond the crisis.

“He who fails to plan is planning to fail.” – Winston Churchill