Running a business brings a host of risks, which need to be managed effectively. The basic purpose of risk management is to help make sure that the organization is protected against internal risks such as credit risks, financing risks, legal risks, reputation risks and operational risks, as well as against external risks related to the market, currency fluctuations, etc. At a rudimentary level, risk management would entail the development of policies and procedures to mitigate business and competitive risks, so that your company can survive if something goes wrong.

Risk Management Best Practices

1.      Write down how you want people to behave in your workplace

Without a written code of conduct, employees would not be able to draw a clear distinction between appropriate and inappropriate behavior and any associated risks within the business environment. Proper controls need to be in place so that employees know what to do. Items to be addressed by a code of conduct would include ethical business behavior and the consequences of violations

of the code. Other business risks can be managed by documenting policies on procurement, customer management, human resources, expense reimbursement, etc.

2.     Implement controls to minimize employee theft or fraud

Developing a code of conduct is a useful first step to help prevent internal fraud. While it is impossible to completely eliminate the risk, establishing effective internal procedural controls will help businesses minimize that exposure. One simple best practice is to separate key financial tasks. If your business has more than one employee consider appointing a different person for each of the following: bookkeeping, preparation of bank reconciliations, deposit of funds to the bank, and handling of cash. It is also advisable to separate tasks related to the creation and approval of purchase orders, receiving the goods, and matching purchase orders with invoices.

Other measures small business owners can adopt are to retain authority to sign cheques and approve expenses, regularly review employee expenses, inventory, cash-on-hand, and goods ordered and received, make bank deposits quickly and at a separate time from withdrawals, and avoid using cash for payments.

Becoming familiar with accounting principles and with the company’s financial state will also minimize the chances of fraud.

To prevent internal theft, businesses should minimize the motivation and opportunity for employees to steal. This can be done by including background checks as part of the hiring process, paying reasonable wages, creating a safe and enjoyable work environment, and consulting external professionals such as

auditors and lawyers regarding auditing and security policies.

3.     Manage risks ahead of time: Know the risks you face and plan for them

Probably the best way to be able to manage risks is to think about the potential risks your business faces before you are actually in a crisis situation. Sit down with your partners and staff and think about the risks you face in the market, from competitors, potential legal liabilities, product obsolescence, employee departures, rise in raw-materials costs, etc. Write down what you think you would need to do in those situations, and work through what you might be able to do to avoid or minimize those risks. You may find that prevention will require a policy change, a different approach or some advance preparation.

4.     If you’re trying something new, bring in an expert

New product or service lines can involve new technologies, methodologies or regulations that could lead to you or your staff being over-extended, or even doing things in which you or they have little background or training. In such situations, it is valuable to get help from experts to avoid making costly mistakes and to speed up your own learning process. Hire experts or identify and train key internal personnel with the required expertise. Explore the Internet and local business networks for access to experts, as there’s usually someone out there who has the expertise you are looking for.