Fast Track Risk

A value of a business depends on many things but especially quality of earnings and risk. Would you rather have a company with £1 million of sales from a single customer, or 10 customers of £100,000? Which has more risk and therefore potentially less value?

As a starter therefore, do some simple assessments. Who do you look up to in your industry and what do they do well? Look at a few key areas of your business and assess good and poor areas.

Two main questions keep repeating – what is the likelihood of the risk happening to me and what would the effect on my business be if it did. Providing a scoring system to these two basic concepts will enable you to produce a “risk register” and focus on the areas where impact and likelihood are high!!

From a franchise prospective, one of the key risks might be how likely is franchisor to renew franchise agreement or even terminate the agreement?

There are two main types of risk. Financial risk covers things like losing a key customer, a bad debt, price rises from suppliers etc. Operational risk is more to do with the running of your business ie what would happen if there was a major power failure in the building or more seriously a fire. Do you have a contingency plan to manage for events such as these?

Take for example, a Domino Pizza business, the oven does not work and its 11.30 with lunch looming, do you simply close the shop or do you have a backup plan to provide some catering option and maintain customer goodwill?

The basic tools and techniques therefore relate largely to assessing risks, scoring those risks, ranking them in order of seriousness to your business and either accepting the risk or changing the risk profile. In the Domino example, you could always have a spare oven for such emergencies. However, the cost could be prohibitive, the likely failure of an oven may be remote and you have a 30 minute call out agreement to repair, so the risk is managed.

Nothing beats good research so do consider all the risks and the ways to reduce or manage the impact on your business. Consider for instance if you can simply insure against risk (bad debt insurance, loss of profits insurance policy etc).

In summary, you should consider the following four areas:-
1. Knowledge – have you the depth of knowledge to have considered all the risks covering key business drivers?
2. Competences – have you the project management, interpersonal and analytical thinking approach to find solutions to problems?
3. Attitude – you need to have a positive approach and an inquisitive mind set.
4. Behaviour – you require commitment to the process and must encourage others to consider risk, since reducing risk will increase value!!