Running a business is full of risks by its very nature. These could be legal, operational, safety or financial risks. But while avoiding all risks is not possible, it is feasible to take some precautions that minimize those risks. The following are some safeguards that could help many companies avoid some unnecessary risks. In many cases, companies may not even realize their risk of exposure.
• Understand and monitor cash flow. While sales and profits are important, cash flow is critical. When a company runs out of cash, its days are numbered. Unfortunately, many business owners don’t even know how to read cash flow statements. If your company does not have someone on staff that fully understands cash flow, consider either hiring someone or taking a class so you can do it yourself. Most local community colleges offer business classes that cover this and other financial management tools. Online tutorials are also available from organizations such as the U.S. Small Business Administration (http://www.sba.gov/tools/sba-learning-center) and the National Federation of Independent Business (http://www.nfib.com/business-resources/).
• Keep your customers diversified. While large accounts can be nice, allowing too much of your business to depend on a single customer is dangerous. In general, one customer should not be the source of 30% or more of a company’s total revenue. The damage that would be inflicted on the company if that customer took
all or even most of its business elsewhere could be catastrophic. Focus on gaining a larger number of customers, not just bigger sales to existing ones.
• Change insurance coverage to match current business. Companies grow and change all the time, and insurance coverage that was reasonable even a year or two ago, may no longer offer sufficient protection. If your company has changed or grown since you last started an insurance policy, have an insurance expert review its current state to see if adjustments are needed to your coverage.
• Have at least a basic knowledge of employment laws as well as local, state and federal regulations that apply to your operations. Being unfamiliar with these almost guarantees that you’ll end up violating at least one. Never think that ignorance of legal responsibilities is bliss.
• Don’t extend more credit to a new or untrustworthy customer than you can afford to lose. While making a sale is important, delivering an order that’s never paid for is much worse than passing up a sale. An easy way to manage this risk is by requiring deposits or partial payment before or on delivery for new accounts.
• Don’t skip the contract. Having a casual agreement with a customer or supplier is just fine – until it isn’t. When conflicts arise over agreements that have not been written and formalized, you have little to fall back on. Having a written contract also ensures that each party knows what they are expected to do and what will happen if anyone fails to live up to their responsibilities.
• Establish consistent employee policies. These will help prevent many misunderstandings by employees about their rights and obligations in the company. It will also ensure uniform treatment of employees and reduce your liability in any employment-related litigation.
