If you are a small business owner or have plans to start your own business, it is crucial to analyze the associated risks and mitigate them to the extent possible. There are a variety of risk factors involved in running a business and we want to share our thoughts on ways to navigate through them.
How does a business owner begin the process of de-risking their business?
Diversification of income:
Reliance on a single or a small number of income sources is extremely risky. It is easy to become complacent once a consistent source of income is flowing in, however, if for any reason that income becomes compromised, the business can become financially vulnerable.
As the pandemic has shown us, unexpected circumstances can transpire in any industry, highlighting the importance of having not only various sources of income but also various means of selling your products and services (i.e., supplementing brick and mortar stores with ecommerce on your website, and with distribution through online marketplaces)
Obtain capital proactively:
Lenders are looking more favourably at businesses that can plan for the periods when they will need capital in advance. Planning for potential ups and downs and for the periods of expansion demonstrates responsible thinking and control. Establishing credit history for your business through utilization and timely repayment of credit facilities (like business credit cards or business line of credit for ongoing expenses) will help demonstrate proactive thinking.
Having redundancy for all critical parts of business operations is prudent. How long will your business continue to operate if a critical employee, vendor, or a supplier chooses to suddenly interrupt the relationship? Having a Plan B that can be implemented fast will enable business continuity. Plan B might include having more than one employee capable of performing specific responsibilities or having a company available for contract arrangements in case if the employee departs.
B2B - Be Mindful who you’re Dealing with:
Business models that rely on other businesses have additional risk factors that are worth being mindful about:
Although there are risks associated with running a business, you can manage and minimize those risks through developing various sources of income, obtaining capital proactively, establishing a backup plan that can be implemented quickly, carefully vetting business partners and utilizing payment agreements, and implementing anti-money laundering practices. We encourage you to follow these tips and incorporate them into your business to set yourself up for success.
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Advice and research for Canadian small businesses from our expert team