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Reducing Business Risks for SMEs

By on May 15, 2014 in SMEs Insights with 0 Comments

Running a Business is a risk itself.

Risk identification and management should be one of the core segments for every business organization. There can be a number of risk factors that can affect the functioning or even the existence of a business. As most of the Indian SMEs are economically weak and lack proper backup, therefore they are more vulnerable to business risks.

If you are an entrepreneur and your organization falls under the category of SMEs then reducing business risks should be one of your prime concerns. Business risks are usually the factors that results in reducing the company’s overall productivity, profits and leads to economical losses.

Types of Business Risks:

Every organization is prone to certain types of business risks. Some of them are:

  • Informational Risks: Informational risks are related to the misuse or unauthentic circulation of confidential documents. As each organization possess some of the confidential data that can affect the ability or competitive position of the organization. Such documents and data should be kept and secured properly for avoiding information risks. Client lists, trade secrets , etc. can be some of the information sensitive documents.
  • Economical Risks: The most common and hard to manage business risk for Indian SMEs is the economical risk. The improper cash flow management and failure of financial budget leads to economical risks. A proper check on expenditures and accurate estimates of income can help in reducing the economical risk. Most of the Indian SMEs lack financial supports and funding sources. So economical risks in SMEs can even result in the closing of the business.
  • Technological Risks: These risks are related to technological changes and failures .Outdated machinery, lack of electric supply, communication disturbance are some of the technological risks. For example ,a printing house has to print 1000 copies of a magazine in 3 days but due to some technical problem only 600 magazines got printed. The magazine’s owner will definitely not do any further business with the particular printing house because it has failed to deliver the product on time.
  • Health and security risk: Health and security risks are mostly concerned with the working environment and the safety in your workplace. For example in an industry where metals are being metaled and converted into different shapes, proper working uniforms, helmets and other safety cover should be there for the workers.
  • Compliance risks: These are the legal issues that can harm an organization financially or legally. Copyrights, licenses, leases and other legal obligations can result in compliance risks.
  • Political risks: Any changes in the industrial reforms, government policies or taxation. In India, Political risks are largely associated with the political party in power.
  • Human risks: Human risks are related to the employees of the organization. Strikes and lockout by workers, dishonesty or lack of dedication in workers or wrong persons on wrong jobs, etc, can be some of the human risks.


Reduction of business risks in SMEs:

Business risks are quite common with all types of businesses. You should take the required steps to reduce these risks. Some of the ways of reducing the above mention business risks are:

  1. Be money conscious – Develop a sensible financial budget. Spend money effectively and in a planned way.
  2. Take insurance against certain risks.
  3. If you have changed your business then change your insurances accordingly.
  4. Insure key work persons – provide reasonable increments and bonus to key employees to ensure their retentions.
  5. Use contracts to ensure legal safety.
  6. Prioritize the risks- which risk should be covered first. It depends on the type of the business.

Reducing business risks are very important. Proper planning and risk covers can ensure the development and growth of your business. As no business can be free from these risks , try to reduce them as much as possible. Timely identification and management of business risks offers a business competitive advantages as well.

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