#158 How to REDUCE RISK In Business
There are a lot of risks in business. It’s not just in your finances, but your operations, strategy, compliance, and reputation too! It can be overwhelming, but we aren’t powerless. In the last episode, I talked about what risk is in business. Today I want to share the process I take clients through when we’re putting strategies in place to reduce or manage risk.
The Three Pillars of a Risk Mitigation Strategy:
1. Business Structure: The first step for any risk management plan is having the right business structure. You want to ensure the structure you choose aligns with your industry and offers asset protection, especially in high-risk sectors.
2. Insurance: The second pillar is having the right insurance coverage tailored to your business needs. You don’t want to pick insurance online because you wont really know what you’re getting. Consult with a broker, they can explain what’s included and excluded so you can be confident you’ve got the proper protection in place.
3. Legal Documents: Unsurprisingly, the final pillar of a good risk mitigation plan is having solid legal documents. Remember no two businesses are the same. So your legal documents need to be suited for your industry, and tailored to your business. They need to comply with your obligations under consumer law and any other professional areas that may govern your business.
Then we look at financial risk. Your legal documents should be crystal clear about what services/products you are providing, what you aren’t providing, and how you’re delivering it. You also want to include when and how you’ll be paid, so you can get paid on time, every time.
Risk management is a crucial aspect that can make or break a company's success. If you proactively address these three pillars, you can safeguard your business and face challenges with confidence. I hope this episode serves as a guide to this process and sets you on the path to long-term success.
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158 - How to REDUCE RISK In Business
tracey: [00:00:00] Hello, everyone. Welcome back to another episode of the rise up in business podcast. Thank you for joining me for this episode. I'm really excited to bringing you this in last week's episode, I spoke to you about risk and what is risk in business. And I shared in that episode that I wanted to shine a light on all of the different types of risk in business, because in today's episode, I want to talk you through.
The approach I take with my clients when we're putting strategies in place to reduce risk or to manage risk, or as I call it, your risk mitigation strategy, it all means the same thing. If you haven't listened to last week's episode, please jump over and take a listen.
I'm sure today's episode will have far greater impact. Once you're aware of the context and the angle that I'm coming at in today's episode. The first thing I want to say, though, is I am not an accountant and I'm not talking to you about managing your financial risk, because that is a niche area.
And like I said in last week's episode, you need a really good accountant on your team. When you're running a business, the same as you need a really good business lawyer on your team, when you're running a business, if you're listening along to this and you're thinking, gosh, Tracy, that's easy for you to say.
I'd love a good accountant. Please reach out and let's have a conversation because if I can understand a little more about your business, I can give you a recommendation. And I'm so happy to do that because as you know, I'm here to help and I love answering questions and I love hearing from you and if I can add value in any way,
including with a recommendation of a good accountant, and I'm happy to do that. So that's the first thing. So I'm not talking about managing your [00:02:00] financial risk and your financial exposure. That's something you need to talk to an accountant about. But what I do talk about here is managing your cash flow and setting you up for success in that context of the finances.
So my starting point when I'm working with a client to talk through their risk mitigation strategy is I explain the three pillars. That a small business owner has when it comes to the risk mitigation strategy.
The first pillar is your business structure. The second pillar is your insurance. And the third pillar, no surprises, is your legal documents. And we can do a lot here. And I'm going to talk about this a lot. First of all, when I talk business structure in the context of your risk mitigation strategy, I'm coming at this from the angle of asset protection.
So your accountant will talk to you about business structure and what's going to suit you best based on your business, your industry, and your tax position. I'm coming at this from the asset protection perspective. So if you're in a high risk industry, we like to look about ways we can strengthen your protection, a company structure or a trust structure is something that we often discuss because you get some protection there.
I also then spend time with my clients talking about the Corporations Act, obligations of directors, times where you won't get protection, debts that aren't protected, ATO debts and so forth. But when we're layering on. Protection for risk mitigation purposes.
First and foremost, understanding the business structure options and landing on a structure that's right for you is really, really important. It's the first thing that we do. Then we talk about insurance. And if you're a client of mine, my advice to you will always be, please don't buy insurance online.
Please talk to a broker. Again, I can provide details of a broker that we use here, the TM solicitor and a broker who looks after many, many of my clients, but talking to a broker to make sure that you're getting the right insurance in place. for your business is really important because if you buy insurance online, the reality is you don't really know what you're [00:04:00] getting.
You're not aware of all the exclusions and we can't be satisfied that you do have the best protection in place. So the discussions around insurance will always start with public liability, professional indemnity, and workers compensation, if applicable. And it extends from there, depending on your unique circumstances, your business, your position.
So that's the second pillar. is your insurance. And the third pillar to the risk mitigation strategy is your legal documents. And this is where I can have the greatest impact working with a business owner in setting up ways and strategies to manage risk. So to produce it, we want to make sure that compliance risk is managed.
so therefore, in the documentation that you have in place and what documents you need depends on your specific business and your specific industry, but whatever it is, we identify that, but then we dive in because we need to make sure you're complying with your obligations under the Australian Consumer Law.
And then we need to identify any other areas or professional bodies that govern you that you need to comply with. Once we've got that compliance and licensing down, we know we've managed compliance risk.
Then we look at financial risk. So we make sure that in your legal documents, it is crystal clear , how you are to be paid, what services you're providing, what products you're providing, any exclusions, what you're not doing, what you're responsible for, manage the expectations, how are you delivering it.
When are you being paid? What's your payment process and your payment schedule? Deposits? Progress payments? Stages? Full payment in advance? Whatever it is, we talk about it and make sure that we're incorporating all of that into your legal documents so that you're getting paid. on time, every time, because this helps manage the financial risk when it comes to cashflow.
As we all know, cashflow is the cornerstone of every business and we need to make sure we've got solid, reliable cashflow so that you're getting paid on time, every time [00:06:00] to manage that component of financial risk. And we do that with such effect in your legal documents.
Your operational risk is really important and that's something that we can deal with really well in your legal documents. Because again, these documents will set out how it is your business is operating, what you're doing, what you're not doing, what you're providing, how you're getting paid, what disclaimers apply, what's your liability limitation clauses, where's your protection.
It all comes in here when we're talking about the operation of the business. And that's something that we can do in a really powerful way in your legal documents, provided we have the opportunity to tailor these for your business. Because no two businesses are the same. And like you've heard me say so many times on this podcast where I'm really active.
DIYs for Bunnings, not for illegals. So templates don't have any place in my view, when it comes to legal documents for business, because these legal documents are so important, you do not want to be taking shortcuts with them. So I'm very firm in my view. That if you want to use templates in your business, use them for your Excel spreadsheets or your cashflow projections or, or other things, not your legal documents.
what we're also doing here, and you can start sensing this for yourself. I'm sure, but we're setting the business up for success when it comes to mitigating. Disputes. So whether it's clients or team members or suppliers or a business partner or a contractor having properly tailored legal documents in place that really set out how you do business and what's expected of everybody else, whether they're client service agreements, your click wrap terms on your website, your employment agreement, or your contractor agreement, whatever it is, there'll be a mechanism in there, which manages expectations between the business and that party.
And. A dispute resolution clause if need be, but ideally we want to stay away from that. We want to prevent that because we've set out in the documentation as [00:08:00] much as we possibly can, because we've taken the time to tailor it to manage that relationship successfully. We can't, of course, look into our crystal ball and predict what's going to go wrong and we can't control how other parties conduct themselves.
So if we do find ourselves in an unfortunate event where there is a dispute or a misaligned expectation, then we have a dispute resolution process in the documentation so we know, okay, let's invoke this clause. This is what we're going to do. Essentially, we want to make sure we're all coming to the table as adults to have a really sensible conversation in good faith so we can nip it in the bud before it becomes bigger than it needs to be.
So again, that's incorporated into the documents and that can be really powerful. So you're starting to see the scaffolding effect that this documentation has, which is why Your legal documents is a really important pillar to your risk mitigation strategy. And then of course, in taking care of all of this, we're managing our reputational risk because we're setting ourselves up for success with the party that we're entering into an agreement with, as I've said, client, supplier, consultant, employee, business partner.
We're setting ourselves up for success because we're outlining in the documentation The expectations, how we do things, what we're not doing. All of the things that need to be taken into account for that particular relationship we're dealing with in the documents. So we're managing a reputational risk because we don't want things to go sour.
We want to be able to nip things in the bud if they pop up unexpectedly so that they don't turn into bigger issues and have that impact on reputation. Clients feeling dissatisfied and leaving. We've all heard the statistics that an unhappy client will tell more people than a happy client about their services.
We want to mitigate that. We want to reduce that. We want to manage that by setting ourselves up so that we don't have unhappy clients and that if we do get to a point where there's some misaligned expectations or a client becomes disgruntled, we've got a process in place where we can detect it and deal with it, protecting us from reputational harm.
Risk and harm. Same with employees leaving. Same with a business partner and falling out or, or circumstances have changed in life [00:10:00] and people want to part ways. It happens. But the point is, these important legal documents need to be tailored to accommodate for those things and to think about these things so that if they happen, your business is positioned really well to be able to deal with them without it impacting the business in a negative way.
And in this context, I'm talking about that reputational risk. So you can see from what I'm saying here that when a business is setting itself up for long term growth, long term success, we need to think about the things that can go wrong and put preventative measures in place.
It's much like going on a long car trip. We need to make sure we've got enough fuel, engine oil, the tyres have got air in them. We need to make sure we're doing all the things we can to make sure To give us the best chance of getting to our destination. So in business, it's not dissimilar. We need to make sure we're doing all the things we can to give ourselves the best chance of achieving that success that we have our eye on or our vision.
And we do that by having a really solid risk mitigation strategy. So a plan to minimize and reduce your risk. And you do that. By addressing the three pillars, pillar one is business structure. Pillar two is insurance and pillar three is your legal documents. They are all equally important. I can add most value when we're talking about the legal documents.
And that's why I've spent most of my time in this episode talking about the legal documents. Business structure, definitely a discussion to have. Collaborate with lawyer and accountant. Insurance, definitely talk to a broker. Please don't buy insurance online.
And three is your legal documents. Have your legal documents tailored for your business so that you've got peace of mind knowing that your business documents work for your business. They do everything they need to do and you can rely on them to protect you in the event you ever need to. Your business documents, if tailored properly, can be one of the most powerful tools in your business.
And now, you can understand why. It's compliance, it's client satisfaction, it's cash flow, it's continuity, it's reputational risk mitigation. your legal documents [00:12:00] do so much. They do so much to set your business up for longterm sustainable success. I really hope this episode has been helpful and that you've enjoyed this episode.
After listening to last week's episode, where I share with you what the risk is that I'm talking about, I've now shared with you what you can do in your business now to set yourself up to protect from and manage that risk should it arise. So again, if you know somebody in business who you think would benefit from listening to this episode as well, let me know.
Please share widely, it would mean the world to me because that's how we help the podcast get into the years of even more business owners. That's what I'm here for. As always, thank you so much for your time. Thank you for listening and I'll catch you next week.
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