Few forces in nature can match the zeal of an entrepreneur. The
early days of a new enterprise are filled with boundless energy
and faith that the entrepreneur’s dream will soon become
reality. Then reality arrives. Risk is reality. Unmanaged or poorly
managed risks are why the vast majority of small businesses fail.
According to Small Business Administration figures, approximately
550,000 small U.S. businesses with employees will disappear
this year, resulting in a huge and tragic loss of private capital
and personal dreams. The saddest fact of all is that much of this
loss is a needless waste.
Small businesses must be innovative in order to prosper. Innovation
is difficult. Brilliant visions of new products or services rarely
arrive on the wings of serendipity. Effective businesses use a
disciplined process of careful, constant observation; focusing
on changes in customer behavior that reveal new opportunities for
entrepreneurs who can spot the change, define the new “need” and
fill it quickly. Focus. Focus. Focus.
But every business bumps into trouble, and this disciplined, innovative
focus is nearly impossible to maintain when risk erupts and seriously
threatens the company. Trouble shuts down focus and progress. The
entrepreneur’s best resources must abandon their real jobs
and become firefighters. Of course, the entrepreneur can’t
make money or innovate while fighting fires.
The most successful companies avoid firefighting by managing risk.
A recent study at the University
of Southern California at Los Angeles showed that “crisis
prepared” companies
suffered 57% fewer emergencies and enjoyed up to 100% higher return
on assets (ROA) when compared to “crisis-prone” companies;
proof that you make more money by avoiding firefighting.
Every business faces risk. But being “risky” is a choice.
Well-managed small businesses use professional risk management
like a bulletproof vest; preventing most risks from occurring and
reducing the danger of risks they can't prevent. With fewer and
smaller fires to fight, they remain focused on innovation and improving
customer relationships. Because risks are managed, they also enjoy
lower insurance premiums, smaller legal costs and better banking
relationships.
There are two hallmarks of these well-managed companies. First,
their owners understand that managing risk is an ongoing process,
just like sales or marketing. Second, their owners understand that
risk management isn't part of their job. They delegate risk management
tasks to an effective employee or partner, perhaps their administrative
VP or controller.
Effective risk management isn’t brain surgery. 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 strategy
and tactics. Most risks can be managed with paper (usually in the
form of contracts) and simple business processes. The risk manager
obtains model contracts from trusted resource books, other companies
or an attorney, and edits them to fit the unique needs of a small
business. For example, my book, Bulletproof Your Business is filled
with model contracts and templates, among other resources, that
can be a lifesaver to the person in charge of risk management.
It should cost little to have an attorney review the edits and
add the finishing touches. Once a year the risk manager verifies
that the contracts are working as expected and keeps them up to
date.
Client risks usually come down to getting paid and limiting client-related
liability to survivable levels. These risks can be easily managed
through a well-written sales contract. Most clients will accept
a sales contract if it is reasonable and shows sincere respect
for their needs. A smart set of preestablished contract negotiating
fallback positions will handle most client objections and keep
the contract negotiation process moving quickly.
Most supplier risk objectives boil down to getting what you pay
for and shifting liability away from your company. Again, a well-written
contract and preset fallback positions makes this effort faster
and easier than you might expect.
Employee risks are managed by contracts called the "nons" -
nondisclosure of important information, noncompete against your
company, and nonrecruitment of your employees by those who leave
your company. Just the act of deploying these contracts is a powerful
deterrent to trouble. I've never had to enforce one of these contracts
over the course of twenty years and 1,000 employees.
Banks require entrepreneurs to sign a personal guarantee before
receiving a substantial loan or credit line, placing their personal
wealth (and often their home) at risk if they default on the loan.
This is often an entrepreneur’s greatest risk and can be
a frightening experience. But guarantees are only contracts and
bankers are human. Guarantees are usually negotiable and there
are many steps entrepreneurs can take to reduce this financial
risk. Forecasting cash flow is another major financial risk that
is also best handled with a piece of paper. A ‘cash budget’ is
a simple forecasting tool, especially suited to entrepreneurs who
dislike the complexities of accounting. It is easy to use and can
save your company from the ultimate "Game Over" business
scenario.
Clients, bankers and insurance companies will reward your efforts
at risk management. Making your business less risky directly lowers
their risk in dealing with you. These steps can be implemented
quickly, cheaply and with surprising ease. They might cut your
total risk in half and save your company when a big trouble comes
to visit.
About Brad Forsythe
If you own or manage a small business, Brad Forsythe is a good
person to know – he can cut your company’s risks and
costs while making it faster and more aggressive. He is the creator
of a practical guidebook for small business, a road map on risk
management called Bulletproof Your Business. He cuts through the
legal and auditing jargon and in plain talk, Forsythe details how
owners can control risk rather than being controlled by it, and
how they can delegate risk management work to trusted employees.
The book goes on to serve as a training guide and workbook for
managers assigned to risk management tasks, helping small business
find, reduce and prevent risk – and keep it under control,
while reducing insurance and legal expenses. In putting the book
to work, suppliers become more efficient and customers are served
better and faster. Readers learn their vulnerabilities and how
to proactively reduce contractual, financial, operational and legal
issues and be more aggressive in their strategic positioning.
Less risk is an important issue. As Oscar Wilde stated, “Nothing
focuses the mind like the sight of the gallows,” and Forsythe
empowers small businesses to avoid the pitfalls that force them
to focus on risk-related trouble instead of their core competencies.
No question, Brad is a leader and visionary, taking disparate information
and putting it together to bring about knowledge and action, two
words that describe himself as well.
With over 20 years experience in the strategic leadership, marketing
and operations of small, medium and large businesses, Brad understands
what works in the business of risk mitigation and prevention. In
1981, he co-founded one of the most successful loyalty marketing
companies in the United States, Frequency Marketing, then in 2003
embarked on a new journey in innovating and teaching best practices
in small business risk management.
Today, he expertly counsels small business. Brad is a trusted resource
for both the media and businesses through executive seminars in
discussing practical ways to avoid pitfalls and empower small businesses
to work smarter. His methods bring about a more rewarding environment
for owners, employees, clients and vendors.
Quick Bio
Brad Forsythe is certified from the Harvard Business School in
small business strategic finance and is a 1975 honors graduate
from Augsburg College in Minneapolis, completing his bachelor’s
degree in communications. Forsythe began his career as an incentive
travel manager and later moved to group sales manager within the
hospitality division of American Airlines. In 1981, he co-founded
Frequency Marketing and served as its executive vice president
overseeing legal, human resources and risk management. In 2003,
Forsythe founded Best Practice Advisors, LLC., and teaches the
professional practice of risk management for companies with less
than 500 employees. He released his debut book, Bulletproof
Your Business – Cutting Risk for Small Business Owners and
Managers,
in 2004. Read more about Brad Forsythe.
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