Some people are destined to be business owners. There are many great reasons to start your own business, aside from the most popular one, which is the flexibility of setting your own working schedule. But it’s also been well-established that running one is not a walk in the park. There are several risks that come along with running your own business, which can prevent you from achieving your business goals and objectives. The risks associated with a business largely varies depending on the type of business. But there are some general risks that all companies are exposed to.
A study published by the Institute of Management Accountants indicates that strategic risks account for approximately 60% of major declines in market capitalization for several large companies. A strategic risk is the potential impact of business decisions around an inappropriate or weak strategy. It can arise from a number of reasons such as failing to anticipate market changes, acquisitions, and even equipment failure. For instance, a company establishes a conservative approach to making any changes or updates to its products. Unfortunately, competitors are doing the exact opposite and gaining more market share along the way. Thus, many leaders see the importance of setting up a strategic risk management process to mitigate any losses that may arise from a company’s strategic execution.
Every organization runs at risk of a damaged or declining reputation, which can be attributed to several factors. Product non-compliance, loss of sales, and increased legal costs can be some reasons for reputational risks.
However, few controversies are more damaging to a business than a dispute with an employee. Usually, when affected parties embark on litigation to resolve employment disputes, the complaint filed could take up to several years to embark. That is why it is generally in the interest for both the employer and employee to attempt to resolve the matter through mediation. Including employment law mediation in employment contracts are becoming more common nowadays due to—aside from timely resolution—its affordability, confidentiality, and, in most cases, preservation of the interrelationship between the parties involved.
Organizations are exposed to a greater degree of compliance risk than ever before. Global regulations show no sign of slowing down; instead, they continue to increase rapidly and become more stringent. Compliance risk is specifically the potential for losses, legal penalties, and financial forfeiture due to failure to comply with certain laws and regulations.
As a business expands, there will be a need to contend with more rules that haven’t applied to the company before. U.S. companies spend approximately $1.9 trillion in regulatory costs every year. Hence, many agile leaders consider regulatory compliance and risk management as an important organizational aspect when doing business today.
In a recent study, centralized governance was ranked first as the top practice to reduce compliance costs. By having a central governance body to manage a business, all departments will be forced to comply with the same unified vision and policy set. It is estimated that having a centralized governance body could save an estimated $3 million in total regulatory costs across over 50 organizations.
Business risks are hurdles that many companies will encounter along the way. Eliminating risks entirely is impossible, so the next best thing to do is to familiarize yourself with the different risks involved in running a business to know how to avoid or bring them down to the lowest possible impact.