Realise the risk
Manage what you can when you can

Bekker says that a risk analysis will help a business to get a better picture of where it might be going forward, helping the entrepreneur ensure long-term sustainability. Bekker says that a risk analysis will help a business to get a better picture of where it might be going forward, helping the entrepreneur ensure long-term sustainability.
Business is all about risk.

By risking money in a venture, entrepreneurs are able to make money.

Sustainable businesses however, stem from entrepreneurs managing the risks that come along successfully, to ensure that their ventured moneys yield returns.

Broadly speaking, there are two types of risk in business controllable and uncontrollable.

Both types of risks can be mitigated to greater or lesser extent but this means taking control of a situation.
Realise risk
Christo Botes, an Executive Director with Business Partners, explains that each different type of business has an inherent set of risks associated with the sector it operates in.

These risks are usually controllable for the most part: "In a manufacturing business for example, a product might be defective," Botes says.

"Other risks could include a new product coming into the market and yours being sidelined."

Other, uncontrollable risks can be more generic such as a fire destroying the business' premises.

"If you try to address each and every possible risk, you will never be able to run a business and focus on your core elements such as offering a product or service," Botes says.

Sanlam market specialist coordinator for Gauteng, Dries Bekker, echoes this, saying that the first step is to realise the risks that currently influence and could potentially influence a business.

"If the business owner knows that a scenario will or could take place at some stage in the future and the different risks this involves, then he or she can start looking at different scenarios to deal with it," Bekker explains.
List the risks
Botes believes that most business risks can be identified by merely sitting down and thinking about an operation in a logical manner.

Business owners need to start at one end of the business and work their way through to the other, thinking about elements such as location, product offerings, production processes or market changes.

He adds that most insurance companies also offer automated systems that are able to analyse risks according to severity or potential impact.

The easiest risks to mitigate or manage are the controllable ones that an entrepreneur can address directly.

"In our business, we conduct a risk analysis once a year. The elements discussed relate directly to our business and our products. We need to be able to show our shareholders that we have adequately addressed the factors that pose a risk to their investment and that we can remain a going concern for at least the next year," Botes explains.

Bekker adds to this, saying that there are risks that a business will face going forward, which it can start to address today.

"Whenever you start a business, you have a specific focus on making it work that is the priority. Some risks tend to stay behind.

"You can compare it to normal life when you get married you never think of the relationship ending.

"Addressing these risks is not an immediate priority which is understandable because a specific event needs to take place for these risks to come into play such as a partner leaving or becoming disabled," he says.

Bekker explains that an entrepreneur invests a lot of money into a business over time. At some stage, this person will need to see this investment pay out.

But, having to find R10 million all of a sudden to buy out a partner might just see a business going under.

He says that by planning for this risk early on could involve making sure that the money is available or, that enough capital has been set aside to secure a favourable loan.
The time will come
Bekker adds that not all risks can be addressed at once because there are cost implications, or because the level of the specific risk could be quite low at the moment.

But, knowing that a risk exists allows an entrepreneur to make an informed decision on how to approach it.

Uncontrollable risks however, can strike at any time and this ranges from a freak fire to a tornado tearing through a factory.

This is where insurance comes into play and according to research conducted by Sanlam, very few SMEs actually take the bull by the horns.

For example, only 35% of SMEs have policies that cover the loss of a key person in the business (keyman insurance), the death of a partner, or the possibility of a key player becoming disabled.

Bekker says that a risk analysis will help a business to get a better picture of where it might be going forward, helping the entrepreneur ensure long-term sustainability.

Reactionary, knee-jerk decisions, he says, are often not the right ones.

Botes says that there will be times when a business is the victim of external, uncontrollable factors. Many business owners have recently fallen victim to this due to the recession, when some markets disappeared almost overnight and cash flow dried up.

While these global events are beyond the average entrepreneur's control, there is still something that can be done and this is where prudent financial management plays a role.

Botes explains that cash flow management can help a business to survive the bad times or that expansion can be approached in a way that does not put the rest of the business under undue pressure.

The key to risk management, he says, is to be aware of a possible hazard and to make contingency plans based on different possible future scenarios.