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How to identify business risks

How to identify business risks

Knowing your business risks, the ‘what if’s that could affect your livelihood, can be the deciding factor in your ultimate success. Every business faces challenges and risks – some of which are easy to manage, while others are more serious and can threaten survival.

Working out how to manage those risks and challenges ahead of time can be a worthwhile exercise as it forces business managers to focus on the vulnerabilities of the business and identify the faults and weaknesses that can then be addressed. Once you know the challenges you face, you can work proactively to manage them.

Identify first

The first job in any risk-management process is to identify the aspects of your business that may cause problems. There may be red flags such as too much reliance on a single customer, a shortage of cash, poor cash flow forecasts, non-paying customers, supply chain disruptions, staff shortages, corruption, economic changes or weather disruptions.

Each of these factors needs to be addressed in depth separately. To begin, however, business managers need to ask some serious questions:

  • What can go wrong?
  • Who is likely to be affected?
  • When can it happen?
  • What can be done to prevent it?
  • How can we recover from it?

One of the best and often underutilised sources of insight into a business is its own staff. Ask your internal resources to weigh in on those serious questions to help you realise what you haven’t thought of yet. You’ll get great advice with the added benefit of making your staff feel included and engaged in the success of the business.

Document second

It’s a good idea to develop a risk register to document your perceived problems, their level of seriousness, what is required to fix them and how you can prevent them. The next step is to work out how to counter each threat, then to decide how to recover.

Formalising a risk management process through a risk register is not intended to replace your experience and intuition. The risk register’s purpose is to get you thinking about the factors that could threaten your success over the long term and determine a proactive approach to mitigation and prevention.

By going through perceived risks in a methodical way, your business can go a long way towards being prepared for the expected and to cope with the unexpected.

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