There is good news for entrepreneurs. Recent research indicates
that these entrepreneurs now have about a 33 percent chance of
survival.
Many entrepreneurs have difficulty seeing a 66 percent
chance of losing their personal wealth as good news. Surely, no
smart Wall Street investor would accept a transaction in which
risk is stacked so high against success. But a small business doesn't
have to be "risky."
Being risky is a choice many small businesses can avoid. Small
businesses simply don’t have the resources available to them
as their large counterparts, so the must learn how to focus their
resources on a more predicatible and bigger bottom line and stop
wasting time and money fighting trouble that could have been first
prevented. It all starts with a solid risk management program – a
program that proactively manages insurance and financial risk from
clients, suppliers, and employees.
Client risks usually boil down to getting paid and limiting liability
to survivable levels. Many of these risks can be proactively managed
through a well-written sales contract, for example. Most clients
will accept a contract if it is reasonable and shows sincere respect
for their needs. A smart set of preestablished contract fallback
positions will handle most client objections. Preset fallbacks
keep the contract process moving quickly, so that a good client
doesn't
lose interest and walk away.
Most supplier risks objectives boil
down to getting what you pay for and shifting liability away from
your company and onto the supplier. Again, a wellwritten contract
and preset fallback positions makes this effort easier and faster
that one might expect.
Employee risks are managed by contracts called the "nons" -
nondisclosure of important information, noncompete against your
company, and nonrecruitment of employees by those who leave the
company. Just the act of deploying them is a powerful deterrent
to trouble. I personally never had to enforce one of these contracts
over the course of twenty years and almost 1,000 employees.
While every company has its own unique risks, most risks are universal
because they are linked to people; clients, suppliers, employees
and financial stakeholders (i.e., banks or venture capitalists).
These people are highly responsive to risk management and most
of their risks can be managed with paper (usually contracts) and
some smart thinking.
Mosts banks require owners to sign personal guarantees before receiving
a substantial loan or credit line. This is often an owner's greatest
financial risk. But guarantees are only contracts and bankers are
human. Guarantees are usually negotiable and there are many steps
a successful small business can take to reduce risk.
Forecasting cash flow is another major financial risk that is also
best handled with a piece of paper. A simple forecasting tool called
a "cash budget" is ideal if you dislike the
complexities of accounting. It is easy to use and can save small
businesses from the ultimate "Game Over" business scenario.
Clients,
bankers and insurance companies will reward proactive efforts at
risk management. Moving a small business toward “bulletproof” status
and making the business less risky directly lowers their risk.
Delegate the job to a trusted employee, perhaps an administrative
VP or controller. Each can get model contracts from other companies
or even an attorney, then edit them to fit the company's unique
needs. It should be fairly inexpensive to have an attorney review
the contracts and add the finishing touches. Once a year the risk
manager verifies that the contracts are working and up to date.
This is risk management done quick, cheap and surprisingly easy
- but an effort that just might save the company.
Small business owners or CEOs understand that if they are always
fighting trouble because of risk, be it financial, human resources
or legal, the opportunity to make money is significantly diminished.
Well-managed small businesses are aggressive in the marketplace
and aggressively
and professionally manage their risks. They proactively prevent
most risks from occurring and mitigate the danger of risks that
can't be prevented. Instead of wasting time and money fixing "what
blows up," they focus
intensely on innovating products and services and improving relationships
with their customers. They are able to focus on their core competencies
and on their passion – their business.
Because risks are managed, they enjoy lower insurance and legal
costs, increased sales and even better banking relationships. These
small companies are more likely to attract and retain a high level
of employee talent, who are surely smart enough to recognize a
good company when they see it. There are tools that exist that
allow
small businesses to proactively manage their risk and do it the
right way. Unfortunately, the most common way small businesses
manage risk is to ignore it and fight fires as they flare up. Obviously,
not a hallmark of a well managed organization.
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