Posted 06 Jul 2020, Editor's Desk
How can a small business reduce internal and external risks?
Our economy is largely dependent on small businesses as these companies work in producing services or raw material for big brands. Running a business is not a child’s play. A lot of hard work and sweat goes into building a secure business entity. There can be many risks in business, such as the risk of capital, the right manpower, economic slowdown, and even natural calamity. So before setting up a business, every company should pen down the proper planning of their workflow, which affects overall operations because of these external and internal risks. Not doing this could bring the business to a gradual decline.
Factors that affect small businesses to survive in the market:
Internal Risk is controllable in nature which derives from an improper execution of business plans. There are always some factors leading to internal risk in any company, so how can one overcome it?
1. Risk of Capital – For a small business entity, it is not easy to survive in a highly competitive environment. The risk of going out of business is always at stake.
2. Right Manpower – Finding the right person for the right job is a lifeline for all business ventures. If the key employees leave or cannot perform their duties, then your business could fail, particularly in small businesses that cannot offer attractive salaries and job stability.
3. Product/Service Quality Issue – Small businesses cannot offer a low price for their products or services due to high operating costs. Any compromise in quality can lead to a setback for the business.
4. Debt – Debt can make the deepest holes in the balance sheet of small businesses. It should be very minimal if not zero, to keep going with their operations.
5. Cybersecurity risk - The best organizations today can bear the cost of the best guards. As these bigger ventures show signs of improvement at protecting against cybercrime, cybercriminals threaten to descend on the business’s natural way of life and also tends to focus on private ventures who can't manage the cost of complex security systems. Today, private ventures are the favored focus for cybercriminals.
6. Legal risk – Numerous first-time entrepreneurs might not have the skill to assess everything about each agreement they need to sign or they may ignore something accidentally. These oversights can prompt issues in the near future. Legitimate cost protection can spare you from any extra or unforeseen dangers from providers or clients. This straightforward and simple choice can eventually help you save legal expenses and money spent on protection inclusion.
Businesses have no control over external business risk factors. Small businesses should keep this in mind at the time of planning and setting objectives to avoid the risk in business.
1. Competition – Industry leaders can play with small businesses to keep them out by eating their share of the market. They can reduce the prices of their products or services to make it more affordable for customers; any small business cannot afford to get into a price fight with these big giants.
2. Government Policy – Any change in Government policy can shut the small business venture overnight. An automobile engine part manufacturer won’t be getting any business if the government bans the kind of engine this business was manufacturing.
3. Economic Slowdown – Nobody was prepared for COVID-19. After this outbreak, the most affected industries were Hospitality and Travel. Consumption became very low in these cases and when there is no or very less demand, businesses cannot make any revenues.
4. Natural Calamity – Accidental fires, earthquakes, and tsunamis can happen without any warning. At times, the losses could be beyond recovery if a small business entity has not prepared itself for these situations.
Therefore, in every business which faces risk, there is always a silver lining that offers hope and helps you to overcome it. One should be motivated and must have a positive attitude towards every situation that can impact you in the future.