Once business risks have been identified and assessed, what can you do about them? How can you manage them? Your consulting business should include specifics on risk management involving clients, competition, marketing, pricing, profitability, suppliers, and other vital categories.
Professional business managers use one of four primary techniques in managing risk:
These responses are available to you in your consulting business. The following are some proven guidelines for risk management in small business.
In business, risk avoidance can be effective. For example, if you believe competitors can ruin your business, find a niche where you will have no competitors. Of course, you must also verify that it will have sufficient clients to support your services.
In building your consulting business, consider the primary risks that you've identified and consider whether avoidance is a viable option. What can you do to avoid these risks?
Risk reduction minimizes the chances of risky events occurring. This chapter has focused primarily on risk reduction: how to identify and lessen the potential risks to your business. In most business situations, it is the easiest path to lowering inherent risks. Identify and mitigate. If there is a danger that erroneous advice can damage a client, perform due diligence (research and analysis) to ensure the advice you give is accurate. If new technologies may challenge your business, find ways of reducing the challenge through absorbing some technologies to mitigate potential damage.
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In some cases, you can make your problems someone else's — for a fee. The entire insurance industry is built on this premise. Concerned that an unintentional error will wipe out your assets? Buy an insurance policy that covers errors and omissions.
Insurance isn't the only way to transfer risk. You also can pass it on to clients, suppliers, landlords, and others with whom you do business. For example, if the cost of collecting on accounts receivable is cutting into your profits significantly, you can transfer at least some of the loss by changing a late fee or by requiring clients to make a deposit on services.
In some cases, the best thing to do about risks of loss is to brace yourself. That is, if you expect that 5 percent of your accounts receivable will be uncollectable — and that's the best you can do — then accept the loss as part of your cost of doing business. All risks that are not avoided, reduced, or transferred are retained.