Understanding the Risks of Owning a New Business
Starting a new business is an exciting and challenging endeavor. As a new business owner, it is important to understand the risks involved and how to manage them effectively. In today’s economy, businesses face a wide range of risks, including economic volatility, supply chain disruptions, cybersecurity threats, and changing customer behavior. These risks can have a significant impact on a new business’s ability to survive and grow.
It is essential for new business owners to learn how to identify, assess, and mitigate these risks. In this blog, we will explore some key strategies and best practices for managing business risk in today’s economy, and provide practical advice and insights for new business owners looking to build a resilient and successful enterprise.
Managing Business Risks in 2023
The pandemic left business owners on high alert, and that heightened awareness around business risk may continue for a long time coming. Here are a few facts from McKinsey on managing business risk post-pandemic:
- McKinsey’s survey of executives found that the most pressing risk facing businesses in 2021 was supply chain disruptions, with 73% of respondents citing it as a top concern.
- The article recommends that businesses take a “scenario planning” approach to risk management, which involves developing multiple contingency plans for different possible outcomes, rather than relying on a single, static plan.
- McKinsey’s research suggests that companies with a strong risk management function tend to perform better financially than those that don’t. According to one study, companies that prioritized risk management had a higher return on equity and lower volatility in their earnings than those that didn’t.
Future of Business Risk Management
What should entrepreneurs look out for when managing business risks? To stay ahead of the game, Harvard Business Review says to track the trends happening with technology, data, and cybersecurity.
- Risk management is becoming more data-driven and technology-enabled. Advancements in artificial intelligence, machine learning, and predictive analytics are enabling businesses to better identify, assess, and mitigate risks.
- Risk management is no longer just the domain of the finance or compliance department. Companies are increasingly recognizing the importance of involving business leaders, including CEOs, in risk management decision-making.
- Cybersecurity risks are growing in importance as companies become more reliant on digital technology. Risk managers need to stay up-to-date on the latest threats and technologies to ensure that their organizations are adequately protected.
- Blockchain technology has the potential to transform risk management by creating a tamper-proof record of transactions and reducing the need for intermediaries. This could help companies to better manage supply chain and operational risks.
What to Remember about Managing Business Risk
The International Finance Corporation (IFC) compiled a guide offering advice and best practices for managing risks in small and medium-sized businesses, including financial risks, operational risks, and strategic risks. Here are a few key concepts:
- Effective risk management is critical for the long-term success of small and medium-sized enterprises (SMEs). SMEs face a range of risks, including financial risks, operational risks, and strategic risks, which can have a significant impact on their ability to grow and thrive.
- The risk management process involves several key steps, including identifying and assessing risks, developing risk mitigation strategies, and monitoring and reviewing risk management activities. SMEs should adopt a systematic approach to risk management that is tailored to their specific needs and circumstances.
- Effective risk management requires strong leadership, a risk-aware culture, and clear communication. Business leaders should set the tone from the top by prioritizing risk management and creating a culture that encourages employees to identify and report risks. Communication is also critical, both within the organization and with external stakeholders such as customers, suppliers, and investors.
Do you have expertise in managing business risk? Lend your knowledge to the CuyEast Chamber membership through a presentation or workshop! Complete this form to get assistance setting up your event.
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