Business risk is a crucial consideration for companies both old and new. Failure to properly understand the risks facing your business is a guaranteed way to lose control of your business, whether to an unexpected incident or a shift in the market.

In times of economic strife, where a rising rate of inflation threatens the cash flow of businesses across the country, it is more important than ever to understand the risks faced by your business. Here is how to approach risk, and its mitigation.

The Importance of Insurance

Even before you begin the earnest process of uncovering and understanding the risks that face your business, there is a simple action you can take to greatly reduce the impact of many common risks – taking out insurance. Insurance is a powerful tool to use against risk, protecting as it does the value of assets and investments from the physical property to staff costs and even liability.

Insurance is, in some cases, a legal requirement. But spending above and beyond can protect you from wider risks, and ensure growth isn’t hampered by unlikely events or freak occurrences. Still, good insurance should be a last resort following a robust plan of action centred around risk identification and minimisation.

Identifying Risk

There is a comprehensive process you can undertake as a business to understand and manage risk, called risk management planning. This will be discussed in more detail shortly, but first there are some fundamental things to understand about risk.

In identifying the risks inherent to your business, you are doing more than wandering your physical locations looking for health and safety hazards. There are various categories of risk, some holistic and some specific to your business.

While many can be identified and mitigated internally, there are also external factors that can spell danger for your business. For example, the aforementioned rise in inflation is an external factor that will have dramatic implications for budgets, profits, and even investments.

Risk Management Planning

Risk management planning is an overarching process designed to formalise identification of, and approach to, specific risks experienced by your company. The risk management plan is holistic, taking in the financial impact of risks and any costs incurred by addressing them as a cost-benefit analysis, as well as examining and evaluating solutions.

Creating a risk management plan is not a straightforward process, and often requires a degree of expertise to draft comprehensively. Working with a professional third-party consultancy company can help ensure your risk management plan is a useful asset and provides keen insight into the difficulties your business could face.

Reviewing Contracts

While much of your risk management plan will be focused on internal processes and market movement, there are other areas you should take the time to investigate more directly. Contracts you have signed with previous suppliers, clients, and partners may hide loopholes that could significantly impact your future growth; re-examining and re-drafting these can help you close these loopholes and preserve your business’ integrity.