Richard Branson said one of the distinct skills that the greatest entrepreneurs share is they take calculated risks and “the luckiest people in business are those that are prepared to take the greatest risks”. So in this fifth post in the ‘How to grow your business’ series, we look at why taking risks is beneficial to your business and how to apply risk management principles before going ahead with a new idea or project.
The benefits of risk-taking
Without a doubt, taking a business risk can feel dangerous as the possibility of having a loss is real, but it’s also vital in order to make progress. Launching a new product, implementing a new marketing strategy or expanding a business function, risks are inherent in every business decision. Risks arise from uncertainties, but staying in your ‘comfort zone’ means you will continue at the same pace which may not be healthy for long-term growth. In fact, PayPal co-founder Peter Thiel once said to Facebook’s Mark Zuckerberg that “… in a world that’s changing so quickly, the biggest risk you can take is not taking any risk.”
Here are three reasons why risk-taking is beneficial to you and your business.
1. Taking risks can lead to new opportunities. You should consider risks as opportunities to succeed.
2. Taking risks helps you stand out. In a competitive world, having the drive to do something new or different can put you ahead of the rest.
3. We learn from risk and failure. Not every risk leads to success, but the ones that don’t will also help you understand what works and what doesn’t. Every high-profile entrepreneur has experienced failure at some point, but they learn from their mistakes and bounce back.
Risk management is the process of identifying risks and setting up procedures to avoid or minimise them.
Before embarking on a new project, you should create a detailed risk management plan which helps with the followings:
• Identifying risks. The first step is to identify risks by asking when, where, why and how are risks likely to happen in your business. Questions from what will happen if your design blueprint or your business idea is stolen to what will happen if one of your key suppliers go out of business help you to review procedures and establish an alternative plan.
• Analysing risks. This is all about the likelihood of any particular risk happening and the consequences it would have on your business. It is best to create two tables with one charting the likelihood and the other the consequences.
For example, it is unlikely that you will lose internet connection for a day (level 1, the lowest on the scale of likelihood). But if it happens, the consequence is severe as you cannot process any online orders and the financial loss is about £5k (level 4, the highest level on the scale of consequences because you cannot afford to lose £5k).
• Controlling risks. This stage helps you to plan your responses. Considering the example above, you now have to decide if you want to accept the risk of having no internet connection for a day and losing £5k or take action to reduce the risk (using mobile broadband as an alternative). You can also transfer the risk by switching to a different supplier.
• Reviewing and updating your risk management plan. As your business evolves, your risk management plan will follow and change too. Reviewing your risk management plan regularly helps you to identify new risks and monitor the effectiveness of your responses.
When it comes to financial risks, it is helpful to talk to a chartered accountant who understands small businesses and can provide practical advice pertaining to a wide range of areas from credit risks to operational risks.
Grow your business with Tax Agility
From the moment you first set out to become an entrepreneur, you’ve been taking risks and hopefully they’ve paid off so far. But as time goes on, you are likely to come across even bigger opportunities and you’ll need the right help. At Tax Agility we have shown many small business owners how to turn risky moves into success by having the right plans in place.
Tax Agility is the local London accountant who can help you grow your business. To get help with risk management or any other aspect of business growth, call our specialists at 020 8108 0090 or use our Online Enquiry Form.