Top 10 SME Business Risks
The first step in implementing a risk management plan is identifying
potential risks to your small business.
Insurance is a key component of any comprehensive risk management plan,
but successful risk management also involves prevention, training and
contingency planning.
Here's a list of the top 10 risks faced by SMEs.
Checklist
1.
Cash flow
One of the biggest risks facing small and medium businesses is
cash flow.
Businesses must consider where the money is coming from to
keep the lights on, to pay employees, and to invest in growth.
Calculate every month how much money you have on hand and
how long it will last if your income dries up. Also evaluate monthly
your total accounts payable and the number of days accounts are
outstanding because a slowdown in accounts payable will lead to
cash-flow crunches.
Avoid those crunches by creating a contingency plan and setting
aside three to six months of operating costs in reserve.
2.
Reputational risk
This is by far the most commonly overlooked risk, but a company’s
reputation is its single, most important asset.
SMEs need to monitor their reputation, and with the increasing use
of social media this has both become easier and harder to do.
Harder because every customer has a public forum that they can
go to if they are not happy with your company. Easier because
these conversations are no longer happening behind closed doors;
they are happening in public spaces online.
Business owners should monitor online conversations about their
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brand and participate. In addition, every company should have a
social media policy.
3.
Supply chain
Another commonly overlooked risk is supply chain. With just-intime inventory and lean business models becoming more
pervasive, companies need to be more concerned about where
their inputs are coming from and what their contingencies are if
they are delayed or lost.
If you rely on third-party suppliers for components used in your
products, for instance, a disaster that interrupts your supplier’s
regular business operations could have a crippling effect on your
production abilities.
Supply chain insurance can cover losses you incur as a result of
an interruption to your supply chain.
4.
Business interruption
A significant number of businesses never reopen following a
disaster such as a fire or flood.
Ill-prepared businesses are often forced to completely shut down
operations during repairs to their premises, which can do
irreparable damage to their brand and leave employees without
work for extended periods of time.
To mitigate this risk, consider adding business interruption
coverage to your property insurance policy. This will cover
operating expenses and lost income while your location is being
repaired.
5.
Key person losses
Often a small business is built around the talents and expertise of a
few individuals. If an employee crucial to the functioning of your
business departs unexpectedly, would day-to-day operations
continue as usual or would disorder ensue?
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Would you be able to maintain your current level of performance
and current revenue stream?
How would you cover for the financial loss of the employee or pay
for a temporary replacement during his or her recovery?
Consider taking out key person insurance to cover such an
eventuality and keep your business running smoothly.
It’s also a good idea to ensure that all staff members are able to fill
in for one another. Creating ops manuals for all key tasks within
the business is also recommended.
6.
Regulatory and compliance
The regulatory and compliance obligations of a business largely
depend on the industry in which the business operates, as well as
its size.
A business operating in the financial services industry, for instance,
will be heavily regulated.
If your business operates in a less regulated industry, but deals
with consumers, you will be required to comply with all relevant
consumer rights legislation such as the Consumer Protection Act
and Protection of Personal Information Act.
When completing your risk analysis, drawing up a matrix
diagramme of the regulations your business works under is an
easy way of visualising your obligations.
7.
Intellectual property
SMEs are required to be innovative in order to survive. In today’s
knowledge-driven economy, intellectual property rights are a key
consideration.
In many cases, SMEs do not fully exploit their innovative and
creative work simply because they are not aware of the intellectual
property rights system or the protection it can provide.
You need to know how to identify, license, protect, enforce and
monetise your SME’s intellectual property.
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Protect your company’s IP by registering it through the Companies
and Intellectual Property Commission (CIPC).
8.
Data security
Small businesses have just as much responsibility as larger ones
to protect their and their customers’ data.
Whether it’s kept in a server room, in the cloud or on a laptop,
SMEs have an obligation to protect confidential information and
intellectual property, and protect against deliberate attacks on their
networks and systems.
Businesses will continue to struggle to deal with increasingly
complex legal obligations to proactively protect data and report
breaches to regulators.
Over and above deploying the latest technology to protect your
company’s data, you should be informed about current regulations
that govern your data security.
9.
Business assets
Your businesses assets have value and you need to protect them.
One way is to take out insurance that will protect your property and
other assets in case of theft, fire or other covered events.
If you have any kind of bank loan on your business and/or
equipment, then you must carry a property insurance policy.
10.
Human capital risk
Many SMEs are family-run businesses with typically the founder as
the CEO, the offspring as the managing director and other
extended family members working in various departments in the
companies. The top risk in this set-up is the lack of succession
planning.
As the senior positions are usually filled by family members, such
SMEs will find it tough to recruit and retain talent since there is
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limited or no avenue of progression for non-family members.
Another risk is the lack of knowledge and/or training of staff.
Technical know-how is often 'passed down', which may lag behind
current technology. Such 'training' is not structured and provides
no continuity.
Have a proper succession plan in place and ensure that
employees (family or otherwise) are kept up to date on
developments in your industry.
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