How to Manage Business Risk That Changes as You Grow

I have a client who opened a small deli and specialty grocer in our hometown. The biggest risk he initially faced was bringing customers through the door. He is an extremely likable guy with great products, so drumming up business was no problem.

Then, the risk shifted.

As revenue started to flow in, he had to figure out how to keep up with demand. There were storage and refrigeration concerns, too. It also became evident he needed to hire more than the one family member he had helping him out.

What Are Business Risks and Why Do They Change?

These dilemmas are not uncommon for small startup businesses that realize success. Owners worry about wearing the many hats of operations, finance, and marketing. They’re concerned  about compliance matters and even legislation that can derail everything they’ve worked for. They understand risk is ever-changing and not static.

Take hiring employees, for example. What if they get hurt on the job? What if they tarnish your reputation? What if they’re dishonest? It’s one operational aspect of many that may keep you up at night. But you can lessen the odds of disaster.

PwC’s Global Risk Survey revealed how organizations that practice risk management are five times more likely to achieve better business outcomes and two times more likely to realize increased sales.

The things you worry about in the first year of business probably won’t be the same in subsequent years. But you can mitigate risk and keep it at bay.

The Business Lifecycle and Risk Evolution

Let’s look at three principal phases of the business lifecycle and how risk changes in each stage.

Startup stage.

Risk begins when you wonder if you’ll make it through your first year in business. You might have trouble paying the bills or acquiring customers.

While insurance and rainy-day capital might seem out of reach, you can’t take a chance on a fire destroying everything you’ve built. You need to protect your livelihood.

Growth stage.

Growth is great. But risk grows right along with your revenue. There’s simple supply and demand risk with vendors and greater liability as more customers roll through the gates.

You may also rely on electronic systems to track sales, payroll, and other expenses. One successful cyber attack and all your records can disappear.

Established stage.

Established businesses aren’t invulnerable to risk. It just arrives in various disguises.

I know a third-generation lumber yard owner who thought his small business wouldn’t draw the interest of those with malicious intent. His accounts payables and receivables, along with his inventory records, were completely wiped out by a cyber incident. It took a lot of time and money to restore them. At one point, he felt like throwing in the towel.

External Forces That Change Your Risk Landscape

You can run a tight ship, but it doesn’t mean the waters around you will stay calm. And you can’t predict the weather in the business environment.

• Economic shifts: Recessions can slow or halt your client’s spending.
• Technology disruption: A data breach can be costly to your finances and reputation. 
• Regulatory changes: Laws change, and new regulations may catch you unaware.
• Market dynamics: Someone else might do what you do — only cheaper, faster, or with more appeal.

Not taking risk seriously has its downsides. A failure to tweak risk management programs in changing times makes your business far more vulnerable to considerable losses. Being agile and responsive in the face of evolving risk is a sound business strategy.

Warning Signs Your Risk Profile Is Changing

New risks don’t send emails to give you a warning. They just come with the territory of growth and expansion. Some warning signs that your risk profile is evolving as your business grows include, but are not limited to:

• Revenue has grown in leaps and bounds.
• You’ve diversified into other product lines or service areas.
• Staff has grown and payroll along with it.
• Online sales have accompanied in-store sales.
• Vendors are more numerous and contracts are more complex.

If one or more of these scenarios rings true, you need to carefully adjust your risk management approach.

Your Action Plan for Managing Changing Risks

It’s not difficult to reassess the way you deal with risk. A few simple changes go a long way. Some helpful tips include:

1. Take stock of your business. Make a list of assets and invaluable business records and how they might be threatened.
2. Review risk profiles often. At least annually if not more frequently, review the risk profile you create.
3. Understand cause and effect. If you diversify into other business lines, be sure to notify your insurance carrier.
4. Outline processes and procedures. If you experience a major crisis, document how you’ll react and resolve it.
5. Build a network. Stay in touch with like-minded professionals who have their eyes and ears on potential market or legislative changes.
6. Consider an insurance review. Making sure you have the right coverage for your changing business can save you a lot of worry and money if something happens. This guide can help. 

To manage a successful business, you need to have those proverbial eyes in the back of your head. Not only do you need to look forward, but you also need to look back and see what threats might be gaining on you. This is why it’s important to build a structured risk program so you’re always prepared for the unexpected.Get the protection you need. Request an insurance quote or review today.