Assessing Risk

Risk is inherent in any business, but more so for companies started by Entrepreneurs.

Have you taken the time to analyze your business from a risk point of view? What are the areas that pose the highest risk to your company? How do you manage or mitigate such risks?

Entrepreneurs should take time periodically to critically examine the various risks that affect your operations. There should be a formal process to analyze and prioritize each risk category and develop plans to mitigate or eliminate such risks.

While such analysis takes time away from your normal business responsibilites, it creates a critical area for failure in the event you do not manage such major risks.

Entrepreneurs – Do the Right Things!

Ravi Patel

 

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Published in: on February 20, 2018 at 4:44 am  Leave a Comment  
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Rely on Processes

During the initial stages of growth in their new business Entrepreneurs rely upon a limited number of people to know most aspects of their operations. Entrepreneurs depend upon these key people for everything and if someone is not present, it disrupts the operation as no one else is aware of the required details.

For organizations to grow, it is critical to develop efficient, solid business processes. Reliance on an individual or very few people for knowledge of  the procedures to conduct business is quite risky and not prudent.

Solid processes provide the foundation for imparting knowledge to multiple people for understanding the procedures and if properly cross-trained, any one should be able to fill in or step up to perform the necessary tasks as required.

Information on business tasks residing with individuals not only poses a risk, but also eliminates improvements since the individuals have always been doing it the same way and see no need to change. A well-defined process on the other hand allows measurement and continuous improvement from many people to make it even better.

Entrepreneurs should rely on processes rather than individuals.

Ravi Patel

http://www.patelCFOservices.com

Dependency is Risky

When starting their businesses Entrepreneurs might depend on one or a few customers for most of their revenues. This revenue concentration scenario is understandable for the very early start-up stage of a company.

As revenues grow, the increase hopefully comes from having more customers rather than only from more business with the same clients. Diversification in the source of revenues is a critical factor in the long-term success of the company.

The risk of concentration of revenues from only a few clients or one or two big customers could be huge. If a significant portion of the revenues are derived from, say one customer, it could be devastating for the company if such business was lost, reduced dramatically, or even if there were payment problems with such receivables.

Entrepreneurs, at the appropriate stage in their company’s growth, would be well advised to diversify the sources of revenues such that dependence on a few clients does not end up hurting their business. Businesses sustained by only a few customers might be following the wrong path.

Managing revenue concentration risk is a critical component of Entrepreneurs Doing the Right Things!

Ravi Patel

http://www.patelCFOservices.com

 

Consequences of Inaction

Taking risks involves possibility of failures. Decisions to act on something have consequences. Risk averse people eliminate any adverse ramifications by inaction.

Is doing nothing acceptable for Entrepreneurs? Entrepreneurs start businesses as they are risk takers. For them, passion in an idea overpowers any risk of failure. Doing something in good faith, however difficult, is better than not doing anything at all.

What happens when an Entrepreneur grows the business to a point where he or she feels comfortable. Does doing nothing any more become an option? Are decisions postponed or not made because that might upset the “being comfortable” zone?

True Entrepreneurs will always be leaders and risk takers and as they continue to be innovative. Entrepreneurs who become successful CEOs need to be cautious of inaction on significant issues.

Doing nothing is sometimes worse than doing something in good faith but failing. Do the Right Things!

Ravi Patel

www.patelCFOservices.com

Are you Depending on a Few Customers?

When Entrepreneurs start their businesses, they might depend on one or a few clients for most of their revenues. This revenue concentration scenario is understandable for the very early start-up stage of a company.

As revenues grow, the increase hopefully is from having more customers rather than only from additional business with the same clients. Diversification in the source of revenues is a critical factor in the long-term success of the company.

The risks of concentration of revenues from only a few clients or one or two big customers could be huge. If a significant portion of the revenues are derived from, say one customer, it could be devastating for the company if such business was lost, reduced dramatically, or even if there were payment problems with such receivables.

Entrepreneurs, at the appropriate stage in their company’s growth, would be well advised to diversify the sources of revenues such that dependence on a few clients does not end up hurting their business. Businesses sustained by only a few customers might be following the wrong path.

Managing revenue concentration risk is a critical component of Entrepreneurs Doing the Right Things!

Doing Nothing

Taking risks involves possibility of failures. Decisions to act on something have consequences. Risk averse people eliminate any adverse ramifications by doing nothing.

Is doing nothing acceptable for Entrepreneurs? Entrepreneurs start businesses as they are risk takers. For them, passion in an idea overpowers any risk of failure. Doing something in good faith, however difficult, is better than not doing anything at all.

What happens when an Entrepreneur grows the business to a point where he or she feels comfortable. Does doing nothing any more become an option? Are decisions postponed or not made because that might upset the “being comfortable” zone?

True Entrepreneurs will always be leaders and risk takers and as they continue to be innovative. Entrepreneurs who become successful CEOs need to be cautious of “doing nothing” on significant issues.

Doing nothing is sometimes worse than doing something in good faith but failing. Do the Right Things!

Ravi Patel

www.patelCFOservices.com

People or Process Dependency

When Entrepreneurs start their business and during the initial growth stage, they rely upon a few people to know most aspects of their operations. Entrepreneurs depend upon these key people for everything and if someone is absent, it disrupts the operation as no one else is aware of the required details.

For companies to grow, it is critical to develop efficient, solid business processes. Reliance on an individual for knowledge of  the procedures to conduct business is risky.

A solid process provides the foundation for imparting knowledge to multiple people for understanding the procedures and if properly cross-trained, any one should be able to fill in or step up to perform the necessary tasks as required.

Information on business tasks residing with individuals not only poses a risk, but also eliminates improvements since the individuals have always been doing it the same way and see no need to change. A well-defined process on the other hand allows measurement and continuous improvement from many people to make it even better.

Entrepreneurs should have more dependency on processes than individuals.

Ravi Patel

 

Risk Mitigation

When an Entrepreneur hears the word risk it does not concern him or her, since the very definition of an entrepreneur is one who takes considerable risk and initiative in starting and managing a business.

Some people perceive risk mitigation as something you obtain insurance for. That is partly true, but risk mitigation is more than that.

An astute Entrepreneur needs to assess and mitigate risks in numerous areas as many of these risks might not be covered by insurance. Such risks could be economic, governmental, client-related, competitive, employee-based, management turnover, process failures, unmanaged growth, and so on.

Entrepreneurs should take time to evaluate non-insurable risks facing their business and develop contingency plans to mitigate such risks.

Ravi Patel

 

Published in: on May 2, 2011 at 5:53 am  Leave a Comment  
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