The real rewards of risk management

When the holiday season winds down, it will be time to get serious about improving your business in 2012. There are many areas you can focus on to improve your business, but one of the most lasting fixes will come from getting better at managing risk.

Risk management may sound daunting, but why would you resist a discipline that encourages you to review all the risks your company faces - regarding your market and your products, technology, operations and safety, human-resources, and even environmental and social?

Risk management gives you a holistic view of the threats surrounding your business. You then look for ways to head off or reduce the impact of the most likely risks, a process that will prepare you for most challenges the world tosses your way.

Many big companies today have risk officers who oversee the evaluation and mitigation of risk. Most SMEs won't go to this expense, but that's no excuse for not getting the best handle you can on all your business risks.

Here are just a few benefits of a serious risk-management initiative:

* It empowers you to scrutinize your business to identify blatant risks that are easily managed - for instance, a weak cash-flow position, potential health and safety hazards, or key customers who could be wooed away by the competition. By grappling with these potential problems in advance, you can head off some of these problems and take the rest in stride.

* You can save a lot of workforce headaches. Succession planning is a key part of risk management; by reviewing the risk of having to replace each of your top people, you'll know exactly what to do when your controller retires or your top sales rep turns to the dark side.

* Risk management is good management. It ensures that you always know the defect rate of your products, the lifespan of your equipment, the age of your receivables, and what to do if there's a flood or a flu epidemic. As Holiday Inn used to say, the best surprise is no surprise.

* Your staff will be happier and more confident knowing the business is being well managed. A credible risk-management program will help you retain great people and attract new ones. It also ensures that all your costly talent will spend less time searching for information and more time making informed decisions.

You don't need a risk specialist if you involve your management team. Each member could start tracking appropriate risk areas. For instance, your HR leader could study the risks related to workforce accidents and the loss of key talent, while your production manager looks after equipment, workflow, supply chain and fire prevention, and your controller oversees technology, data and financial risks.
How do you get started? An SME Risk Management Toolkit developed by the U.K.-based Institution of Occupational Safety and Health identifies four stages of risk management.

1. Identification of hazards and evaluation of risk. This means making an initial assessment of all your activities and prioritizing the highest-risk areas for further study;

2. Risk control planning and measures. How can accidents be avoided, or their impacts be mitigated? (Example: to avoid workplace accidents, you might implement safer work practices and better training programs; but you should update your insurance policies, too);

3. Planning for actions to take in the event of an accident, and how to recover;

4. Review risk situations and learn from problems and accidents.

Some entrepreneurs argue there's no point getting involved in risk management,because you can't predict every calamity that can befall your business. Of course that's true. But you can adjust for predictable risks - and thus be stronger when unexpected disaster strikes.

It's rarely one problem that sinks a business, but a combination of setbacks. I know one entrepreneur who closed his business recently because of what he called "a perfect storm" of problems: the weak economy, cutbacks by one customer, another client who simply disappeared, and a key employee who quit just when another got pregnant. Good risk management gives you a plan for each of these eventualities, and a fighting chance to survive even the harshest storm.

This post is brought to you by American Express Canada. Check out their new Amex for Business Canada Facebook Page for more SME news and insights.

The Heart of the Question

I had a great learning moment yesterday.

I was attending an annual planning meeting for a mid-sized business, and we were going through a strategic exercise to discuss, “What do our customers value?”

It seemed like a good way to review the needs of the company’s clients and prospects, and make sure we were meeting them. But there was also an expectation that it would help us discover some new unfilled needs that would point the way to new products and opportunities.

Trouble was, we were getting bogged down. People in the meeting, quite naturally, kept bringing up things that clients value that the company already does. Since this firm is already pretty client-focused, that meant we were mainly creating a list of things the company is already doing well.

How to make customers’ unmet needs stand out? I suggested we ask another question: "What do our customers take for granted?"

Suddenly, most of the things we already do for customers could be put in the “take for granted” category, and set aside. They're just table stakes. What matters are the things customers value that nobody is supplying now – because that’s where the best “adjacent opportunities” lie in wait for you.

Why do I need a business plan?

How do you write a business plan? What should be in it? How can it give you a competitive edge? Why do plans have to be so detailed?

And what’s the worst that can happen if you blow off the plan and just start your business sooner?

These are just a few of the questions answered by Steve Stunt and myself in a new “webinar” on business planning produced by TD Canada Trust. The 50-minute program looks at the role of planning, why you need a plan, and how to make sure that every moment you spend on planning (before your startup) will pay you back several times over.

I know lots of entrepreneurs who despise planning and want nothing to do with business plans. I hope luck continues to be with them, because that attitude is about as mature as driving to Gimli, Manitoba without a map.

Steve Stunt is a consultant, broadcaster and business advisor for the Business Development Centre at Niagara College. Rick Spence has been poring over business plans for 20 years. Irene Law is the MC who tries her best to get these guys to offer brief answers to her questions.
If you're working on a business plan, or starting a business without one, grab some popcorn, curl up to the computer and watch this webinar. You have nothing to lose, and a world to win.

Check out the program at http://events-dev.slidecast.com/tdbank/20100112/?referral=0009

Free registration is required. As far as I know, no salesman will call.

And feel free to click on "Comments," below, to let us know if you found a business plan useful in your business.

Your Self-Improvement Checklist

I've been negligent in not linking to my National Post column from last Monday: five self-improvement tips all Canadian entrepreneurs should put on their agenda for the new year.

Here’s my list:

1. Get a good photo of yourself. You never know when you will need one for your website, the media, a community association or an upcoming speaking engagement. No graduation portraits, photos with your family, or snapshots of you wearing a barbecue apron (just a few of the photos I've received as a journalist when asking entrepreneurs for recent pix).

2. Refine your personal mission statement. I still run into business people who can't explain what they do in 30 words, or even 1,000.

3. Delegate more. When you do a job that could be done by someone else in your business -- or by an outside contractor -- you rob your company of the high-level thinking that only you can provide.

4. Review your business plan. With markets and technology changing so fast, if you're not working with a current plan, and updating it at least once a year, you may be falling out of synch with customers and falling behind the competition.

5. Employ more relatives. One of the Canada Revenue Agency's best gifts to family businesses is income-splitting among family members.

Click here to read the full story, with more details on all five points.

Best-Ever Entrepreneurship Quotes, week 60

Here's another installment in our weekly series of motivational quotations, personally selected to get your week off to an inspiring start.

"Every decision you make is a mistake."
Edward Dahlberg, U.S. novelist and essayist, 1900-1977

I don't believe this is literally true. But what a liberating concept it is! No more agonizing over what-ifs and what-to-do. Since you have no idea whether your decision will be right or not, you just go ahead and make it.

Now the resources that might previously have gone toward checking and rechecking your assumptions before making the decision can now be directed to monitoring the result – and making the changes required to ensure that your decision becomes, over time, the best decision possible.

Six Steps to Raising Cash

In an article today at imediaconnection.com, Wall Street consultant Jeff Stone of Crescent Fund offers six guidelines for business owners seeking to raise funds for expansion. You can click here to read the original post, or read my summary below.

1. “Create a comprehensive document that demonstrates how the initiative that requires funding is aligned with the company's overall strategic plan. How exactly will the money be used, and which strategic objective will it help to meet?”

2. “Establish precisely how much money is needed to accomplish the endeavor.” Not knowing how much you need is a sign of poor planning and could lead to a shortfall or poor execution.

3. “Determine which type of financing works best: debt or sale of equity." Keep in mind that "debt successfully serviced means being able to postpone the sale of equity until a succeeding stage of growth when the business has become much healthier” - and when you can hopefully sell less stock for more money.

4. “Provide accurate, timely and complete information to investors, including an honest expectation of return on investment.”

5. “Never proceed with the planned venture until the full amount of necessary capital is in the bank.” Undercapitalization, says Stone, is both common and dangerous. “Many companies procure a portion of the capital needed and then rush into implementation in the hopes of raising the remainder along the way. In almost every case, the economy works against them, and the shortfall turns the entire project into an unrecoverable investment.”

6. “Never raise more money than needed to meet the objective.” Selling more equity than required dilutes your ownership position. And why pay interest on unneeded funds?

According to Stone, long-term business success boils down to “simple good business practices revolving around an intelligently crafted plan and a series of smart financial decisions that align each expansion phase in the direction of the long-term strategic goal.”