Four Reasons Your Small Business Needs Risk Management
From the Blog of Chitra Nawbatt | Huffington PostÂ
As an entrepreneur, is risk management something you think about or even think applies to your business? What is risk management anyway?
Many large, medium and small companies spend a lot of time on risk management and have it embedded in their culture. This includes defining the components of risk, and developing frameworks and processes on how to identify, measure and manage risk. It is never too soon in the life of a small business to think about and address these elements.
Risk can be dissected in many ways. Four commonly defined categories are market, credit, operational and reputational risk. All of these areas can be rolled up into an enterprise wide risk management approach.
Market Risk
In larger companies or financial institutions, market risk is the risk that the value of your assets will decrease due to a change in the value of external factors. Some examples of this include changes in interest rates, foreign exchange rates and commodity prices.
Similarly from the lens of small business, we can think about the economic and environmental factors that impact our business. For example, if you have an import business where you import goods from Asia for resale in the US or other markets, you are subject to changes in international trade laws and regulation, foreign currency risk, availability of goods from suppliers and channels in Asia, etc.
Do you have a plan to identify and monitor the market influences that impact you? One may consider identifying and writing down those potential external influences on the business, and formulating a plan of how to address or mitigate unfavorable market forces.
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