Starting your own business can be challenging, but it doesn’t end there because managing it to its success also entails many hurdles. You will face several problems, including financial setbacks, and there are various causes to these. Some of them are fraud, employee turnover, and poor decisions made. However, you can do something to avoid these financial risks and help your business be more secure.
Every organization is exposed to risk, particularly security concerns. Whether you have valuable internal data such as trade secrets or intellectual property, consumer data such as credit card information, or even employees’ personal health records, such information is a target for cybercriminals.
At the same time, that information is critical to your company’s operations and success, so safeguarding it should always be a top concern. And, when firms pursue digital transformation or remote operations – a tendency hastened by the pandemic – implementing cyber risk mitigation measures has never been more critical.
In this piece, we’ll go over the different sorts of hazards that businesses encounter, as well as recommended practices for managing and preventing such risks.
What are the different sorts of business risks?
Before you can adequately execute risk management, you must first understand the sorts of risks that relate to your sector and organization. The following is a list of the biggest business hazards that businesses face today.
1. Technology Threats
The more we embrace technology and innovation, the more hackers attempt to use those advancements against us. They devise new methods for launching data breaches, identity theft, and financial fraud, all via internet scams, malware, phishing attacks, and the like.
Technological risks can have serious ramifications for your company’s operations and reputation. They can also result in significant financial risks from regulators and costly litigation if data is lost. Businesses must utilize security software and threat detection to discover these threats before they cause harm.
2. Financial Risks
Extending credit or increasing your organization’s debt load carries financial risks for those in the financial services industry. The possibility that economic conditions, shifting interest rates, and other variables will leave you or your clients unable to pay their debts.
Furthermore, financial institutions acquire, handle, and retain a large amount of client financial information, which must be kept secure from illegal access or theft.
Financial institutions should diversify their loans and holdings to mitigate risk and weather economic downturns.
3. Reputational Dangers
Every firm has faced the danger that dissatisfied customers, negative press, lawsuits, and other events would impair the company’s reputation. However, with the introduction of the internet and social media, bad news may spread quickly and widely, substantially increasing reputational risk.
To properly manage this risk, businesses must monitor their digital footprint and be prepared to respond to bad events as they occur. It’s also critical to demonstrate to the public that you understand the situation. You are taking the required steps to enhance your business or product in response.
Strengthen network security
Hackers are always on the lookout for an opportunity to attack networks, especially those connected to the internet. Your company can be a victim of hacking if they find a vulnerability in your system. Use firewalls, and ensure that you have the latest anti-virus protection. Encourage employees to avoid accessing non-business-related sites on work computers to prevent being compromised. Besides the system crushing, which can be inconvenient and could cost money due to the operation downtime, identity theft is also possible. Hackers could steal your information and use it for unauthorized purchases or transactions.
It’s not only through the internet that your system can be hacked. The attack can also come from the local network. Ensure every user has access only to the applications that they use. For example, customer service representatives must only use applications that they need for doing their tasks. Applications or files that are only for administrators must only be accessible by them. Encourage them to practice the habit of locking their computer when leaving their workstation to ensure that they only have access to it. While you must trust your employees, it’s still best to be extra vigilant regarding business security.
Calculate the Financial Risks
To regain control of your risk management, you must quantify each liability on your list. Because these metrics are based exclusively on statistical models, you may want professional assistance or a set of advanced financial instruments to calculate the numbers.
One of the most difficult tasks in your management plan is evaluating financial threats. However, it is critical for the health of your assets that this stage is handled properly. The outcome will allow you to make more educated judgments about your prospective spending in the future.
Learn More About Investing
A complex financial risks management plan should also address the concept of investments. However, ignorance can masquerade as greed, and people are more inclined to fall for schemes that appear too good to be true. Even after registering for a forex practice account, consumers might apply a risk management strategy to avoid significant losses.
However, if you devote enough time to learning and comprehending the investment market, you will discover that it yields robust and lucrative results. As a result, you should begin reading reputable investment websites, books, and articles to become acquainted with all of the concepts that govern this world.
Have cash reserves to secure from Financial risks
You’ll never know when a problem may occur, which could have a massive toll on your finances. Take, for instance, the pandemic that hit several businesses. Unfortunately, no one saw it coming, and several companies closed and filed for bankruptcy. So, save for the rainy days and ensure that you have ample money set aside to keep your business surviving. Have at least cash reserves that will keep you going for six months to a year. If you have more, then the better.
Get insured
Get your business owner’s policy to keep your company covered for unwanted incidents. It’s a combination of two insurances in one package: commercial property insurance and general liability insurance. Commercial property insurance covers repairs or replacements of inventory or damage to your property due to various events like fire. In contrast, general liability insurance will pay for injuries or damages caused to a third party. If you don’t have the right insurance, all these expenses will go out of your pocket, and it can hurt your business’s finances.
Ensure only trusted individuals have access to important documents
As mentioned, fraud doesn’t only happen online. If you are not careful with the people you trust, you can lose money in your business, leading to its downfall. Since they have access to vital documents and data, they may use it for their gain. Plus, those who have access to the company’s bank account could also do something inappropriate with the funds. Ensure that you hire reliable and trustworthy individuals for these positions.
One way to do this is to do a thorough background check, especially for individuals who hold positions involving access to confidential files and those who handle finances and predict financial risks. Not all businesses do this process now because it can be tedious. However, it’s worth the effort because you can see red flags early on in the hiring process to help you make the right decision. With this, you can be sure that you will pay only the exact amount that you owe.
Have a team of experts to do the decision making
Two heads are better than one. If there are more, then the better. Instead of deciding on your own, consult with trusted and efficient staff to brainstorm about financial risks and vital company decisions. They may have ideas that might work, which you may not have thought of. It’s good to have your options open so you can pick the best choice from there.
Be on top of the income and expenses
You may be too busy with the other tasks that you forget to check on the income and expenses of the company. Although you have people to look after this, you must still make time to go through your budget, paystub documents and invoices and do something right away if you find questionable items or discrepancies. Don’t be too complacent, but instead, always have your guard up. If you act on something suspicious right away, you can prevent the issue from getting worse. Plus, you can set the tone in the workplace that you always look over financial matters, so people will have second thoughts about doing something unacceptable.
Create a clear business plan
Besides having cash reserves, have a concrete plan on what to do if your business falls into financial hardship. Perform market research, and learn from other companies that experienced the same thing. If you’ve been in the same situation before, you will have first-hand experience of what it’s like, so you would know how to handle it better if it happens again. Do a step-by-step guide that the company will follow, so everyone will remain focused on surviving the ordeal.
Do a thorough test on products or services
If you have new products or services, ensure that they undergo extensive tests. It’s to ensure that they are safe for use and they are of quality. If they will not satisfy your clients, it’s less likely that they will keep using them after trying. Plus, they may leave negative feedback, ruining your brand, thus affecting other potential customers’ buying decisions. It will be a significant loss on your part.
It’s hard to predict what will happen to the future of your business. But it pays to be ready to avoid the common financial risks that your company may face. So keep the information above in mind to help your company prevent unwanted hurdles in your business finances and know what to do if you encounter them.
