Risks that can sink your business

Business
“A ship is always safe at the shore, but that is NOT what it is built for.”

“A ship is always safe at the shore, but that is NOT what it is built for.” — Albert Einstein

Sme’s chat with with Phillip Chichoni

The Samsung Galaxy Note 7 is probably the best large-screen smartphone available today. It has enough memory to allow you to watch high-definition movies; with its smart pen you can write down notes and draw pictures like you do with an ordinary pen or pencil. Impressive features indeed.

Unfortunately, Samsung has been forced to recall the phone from the market. Since September 1, over 35 Galaxy Notes have exploded and caught fire. One of these explosions is suspected to have caused a house fire in California and another to have burnt down a Jeep in Florida while the owner, who had left the phone charging on his seat, was unloading his shopping.

These incidents have forced Samsung to recall over two million phones. This is a very costly exercise. Fortunately, Samsung is a very big company and will be able to meet the costs involved in compensating customers; it has high revenues — nearly $200 billion. If this incident had happened to a small business, it would likely have been forced to shut down. However, this is just one of the risks of doing business. Every entrepreneur must be aware of the risk of product recall and take necessary precautions, like ensuring the highest level of standards, thorough testing of products and buying components from reputable suppliers. Liquidity risk

Too many small businesses have gone under after running out of cash. This seems to be a worsening trend as our economy goes through a tumultuous phase that does not appear to have an end in sight any time soon. The number one cause for liquidity crunches is poor cash flow management. Entrepreneurs must be cash-conscious, diligently evaluating their cash situation daily and making plans to deal with any expected shortfalls. You should also set aside some cash to deal with unforeseen crunches, like a customer defaulting or delaying payments. What would happen if you lose your biggest customer? Which expenses would you cut? Knowing your cash flow situation in advance enables you to take action quickly and minimise liquidity risk.

Key people risk

Every business has one or more key employees. A key employee is that person whom the business cannot do without. It is that individual whose knowledge, creativity, inspiration, reputation, and/or skills are critical to the viability or growth of an organisation, and whose loss may cripple it. This person is usually responsible for a significant portion of the business’ profits or has a unique and hard to replace skill set such as intellectual property that is vital to the organisation. For very small businesses, the key person is likely the owner or founder. As the business grows, the owner will recruit other people and delegate important tasks to them. I once worked for an insurance brokerage firm that lost nearly 90% of its customers and revenues when such a person left. Apparently, he had developed close relationships with the most important clients and they followed him when he joined a rival firm.

When the key person leaves, you have to hire and train a new person, at a high cost in terms of time and money.

There are a few ways to protect your business from this risk. You can train a number of people on the key functions that are essential in your business. By having a system and several people contributing to different components of your production or service delivery process, you make no one indispensible. The second solution would be to outsource some of the important processes. Firms like car manufacturer Mercedes Benz rely on many different suppliers for the many aspects and components of making a vehicle. Operational risk

Mistakes happen. If problems are not resolved quickly, your business will gain a reputation for bad products, bad service or poor delivery. With new customers so difficult to get in our shrinking economy, you do not want to lose customers due to a reputation of not delivering satisfactorily. The problem with such a reputation is that it quickly spreads and is hard to reverse. People who are not happy with a business will tell a lot more people about it.

The solution is to avoid making mistakes in the first place, or promising what you cannot deliver. When mistakes happen, inform customers on time and manage your team to deliver excellence.

Follow these tips and you will be able to grow your business even if times are tough.

l Phillip Chichoni is a consultant who helps SMEs and entrepreneurs build sustainable businesses. You may contact him by email, [email protected]. You can also visit http://smebusinesslink.wordpress.com