#157 What Is RISK In Business?
Risk is inherent in any business but there are more considerations to take into account than just the financial side of things. Risk in business encompasses various aspects, including your finances, operations, strategy, compliance and your reputation. Truth be told, running a business is not for the faint-hearted. It requires resilience, strategic thinking, and a proactive approach to managing unforeseen pitfalls.
As a seasoned business lawyer with years of experience in litigation and dispute resolution, I have witnessed firsthand the aftermath of businesses facing risks they didn’t anticipate. The truth is that many of these risks could have been avoided with proper foresight and the right structures in place. This realisation led me to launch my business with a mission to empower other business owners to set themselves up for long-term success and avoid ending up in court altogether.
The good news is that you can mitigate risk and protect yourself properly. I often say that prevention is better than cure, and when it comes to risk, this statement couldn't be more accurate. Risk mitigation, protection, and setting ourselves up for success are all key components of a thriving business strategy. Taking this approach will also help you sleep better at night!
Managing risk in business requires a multi-faceted approach. Collaborating with professionals such as accountants and lawyers can significantly enhance your risk mitigation strategy. A good accountant can help you understand the financial risks specific to your industry, while legal experts can ensure your contracts and documentation are tailored to your unique business and will protect you against potential liabilities.
Operational risk, compliance risk, and reputational risk are areas that many business owners don’t think about. But they certainly require attention. By proactively identifying high-risk areas, implementing sound processes, and staying compliant with relevant laws and regulations, you will safeguard your business and protect your hard-earned assets. This is part of what I do with my clients in helping them set their businesses up for success with the right systems and processes in place.
One of the keys to managing risk effectively is to approach it holistically. When you understand the various dimensions of risk in your business and take proactive steps to mitigate them, you will position your businesses for long-term success and resilience. True peace of mind and confidence come from knowing that we have our bases covered and are well-prepared to tackle any challenges that may arise.
Stay tuned for next week’s episode where I’ll be talking about how to reduce risk in business. Until then, I hope this episode is an eye-opener for you and helps you understand that although there are many risks in business, with the right tools and approach, you can face them all with confidence.
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[00:00:00] Tracey: Hello everyone. Welcome back to another episode of the Rise Up in Business podcast. If you're a long time listener, you will have heard me talk a lot on this podcast about prevention being better than cure, risk mitigation, protection, setting yourself up for success. If you're new to the podcast, welcome.
[00:00:39] It's lovely to have you here. You will hear me talk about these things a lot in today's episode. I want to talk to you about what I mean when I talk about risk in business, this is not designed to be a negative Nancy. It's not my intention to be low vibing or negative or any of those things. I want to shed a light though on risk when it comes to business because in next week's episode, I'm going to be talking to you about your risk mitigation strategy.
[00:01:11] So what it is you can be doing to protect yourself from the risk. But before I dive into that, I wanted to take a moment and dedicate an episode to understanding risk and talking about risk, because my view of these things is forewarned is forearmed. and if you've been listening for a while, prevention's better than cure.
[00:01:33] They might sound like cliches or motherhood statements, hand on heart. I don't think that they are. When I say forewarned is forearmed. I genuinely mean it when you know there's an inherent risk or when you know something operates in a particular way, you can deal with it.
[00:01:47] You can put strategies and mechanisms in place to deal with it. Similarly, prevention's better than cure. Uh, duh Tracy, of course, it is, and it is in business too. So, taking the time to understand your risk, where your exposure lies, and putting in place strategies to mitigate it, so to deal with it and to reduce it, is money and time well spent.
[00:02:10] In my opinion, for those who are new to the podcast, or if you've only been listening for a short while, you may not know my background. So let me just share that with you to give some context on why it is I do what I do and why it is that I launched this business, I'm a business lawyer, as you know, because you're listening to the podcast for the first 12 years of my career, I spent in litigation and dispute resolution.
[00:02:36] So that means. All of my clients were businesses, either suing or being sued. Most of the time over money, not always, but mostly, So in those 12 plus years, I saw it all when it comes to what can go wrong in business. And I saw the aftermath of businesses being destroyed, livelihoods being destroyed, marriages destroyed.
[00:02:57] I saw it all the kicker though. Looking back at that time is that most of what I saw could have been avoided and it could have been avoided if the business owners had a known what they needed to know, or if they had have had the right structures, systems and processes and documents in place fast forward to now.
[00:03:16] I launched this business five years ago with a mission to empower business owners to set themselves up properly to avoid becoming one of those clients that I acted for earlier on. So now in this business, I work with business owners to set themselves up properly, strategy, structure, and documentation.
[00:03:35] All of the things to set businesses up for longterm sustainable success so that they don't have to worry about those pitfalls. And a lot of the work I do and a lot of the conversations I have are around risk, risk in business, and how do we mitigate it? And by mitigating it, I mean, how do we minimize it?
[00:03:52] How do we reduce it? How do we avoid it? When I'm talking about risk in business, there's a lot, and I accept that there's a lot of risk, and this is not designed to be scary. I'm just really pragmatic and I'm saying it how it is. We talk about financial risk, operational risk, strategic risk, reputation risk, and compliance risk.
[00:04:13] There's a lot of inherent risk running a business. Of course there is. Running a business is not for the fainthearted. If it was, everyone would be doing it. It's not and I suspect that every one of you. Listening to this, we'll be nodding along right now thinking, yeah, it's tough. It's challenging. It has its moments and it's definitely not for the faint hearted.
[00:04:34] Got to roll our sleeves up, got to work hard. We've got to get down and we've got to hustle. Sometimes it's real. It's all the things. So what we want to make sure we're doing is business owners. And I work with clients a lot on this is to protect what you're building.
[00:04:47] So protect the business you're building, protect your family assets, protect your home, mitigate the risk, project forward, look forward, identify hiccups, issues, roadblocks, whatever you want to call it. Identify the areas of where things could go wrong, identify high risk areas and take steps now to protect them.
[00:05:11] We can't predict the future. We don't have a crystal ball. I totally accept that. And that's not what I'm saying, but if we're thinking longterm, if we're thinking strategic and we've got a vision that we're projecting forward, we can identify it, Tracy, my business is a high risk area and I have contractors and employees and I don't have any documentation for them.
[00:05:33] Strategic risk, operational risk, reputation risk. It's all there. team members that could leave, compete, poach clients. The risk is there. Or it could be Tracy. I've got a fabulous business. I don't have a team. I don't have staff, but I have some really great clients and I do a lot of work with them and they pay me well.
[00:05:57] I don't have any documentation in place to protect me. So we've got compliance risk, operational risk, reputation risk, financial risk over pins, all of it. Because if we don't have all of the things in place, then we're not guaranteed to get paid, which means we run into cashflow crisis or cashflow crunch periods.
[00:06:16] That's a financial risk. We talk about all of the things. So Let me share with you. What I talk to my clients about most often when we're talking risk mitigation, and like I said at the beginning of the episode, in next week's episode, I'm going to talk to you about your risk mitigation strategy.
[00:06:35] So I'm going to talk to you about the strategies to put in place and things to do to mitigate or minimize or manage. but first let's just go through the areas of risk that I work with clients on most commonly. First of all, there's financial risk. I'm not an accountant.
[00:06:53] I do not pretend to be anywhere near as effective as a really great accountant when it comes to finances. I absolutely think that part of your risk mitigation strategy ought to be a really good one. Good accountant, and to that, I say, like lawyers, there's accountants and there's accountants, there's lawyers and there's lawyers, there's doctors and there's doctors, find the right one that works for you, because having a really good lawyer as a part of your team and a really good accountant can go a very, very long way to protecting you against your risks.
[00:07:24] So when we're talking financial risk, I'm talking about collaborating with an accountant to understand the financial risks of your particular business and your particular industry. but the lawyer part of me steps in here and talks about cashflow because cashflow is a part of a financial risk.
[00:07:41] And cashflow is definitely something that your legal documents can work towards. So cashflow is very important. It's the cornerstone of any small business. Legals have a role to play here when it comes to the financial risk and cashflow and consistency.
[00:07:56] Getting paid, payment terms, the legals have a role to play in that part. Of managing financial risk. We talk operational risk. So that's our team. That's our contractors and our employees and suppliers. That's being able to operate in a sustainable way to provide the services or the products that it is that you might be selling. So there's an element of operational risk for us as business owners, thinking about that and how we're mitigating that and how we're managing that going forward is vital to long term growth and sustainability.
[00:08:30] Compliance risk is a big one that I talk with clients about because the most obvious area that businesses are exposed when it comes to compliance risk is the Australian Consumer Law. Not being compliant with the Australian Consumer Law, not knowing that it exists first of all, or how it applies to our business, or how it is we need to comply with it, or what it is we need to do.
[00:08:50] That's massive. In my line of work with my clients, because if business owners do comply with the consumer law, then they get protection. It's really important. And I'll talk more about that next week. But depending on the industry that your business is in, depending what it is that you do, there are other elements of compliance risk, depending on what licensing you need, what professional bodies govern or monitor your business in your industry.
[00:09:16] Compliance risk is real. And it needs to be addressed. It's not something that can be overlooked. You can't roll the arm over and take short cuts with this. You need to know what compliance obligations you have, and then you need to know how to meet them.
[00:09:31] A big, big area of risk that I talk a lot to clients about, At every stage of their business journey is reputational risk. So there's reputational risk from Bringing clients on board and not delivering from bringing clients on board, not managing expectations, poor results, poor outcomes, disgruntled clients because their expectations weren't met because their expectations weren't managed, employees or team members that come on board and then leave in less than ideal circumstances.
[00:10:01] All of these things can have a really damaging effect on a business if not managed. Well, reputational risk casts a net over many facets of the business. So whether it's clients, teams, suppliers, creditors, your professional advisors, whatever it might be. Everything that a business does, the way a business owner conducts themselves has an impact on the reputation of that business.
[00:10:28] And if things aren't going well, or if things aren't going the way the business owner intended them to go, There is the risk of reputational harm or damage here. So the approach that we need to take when it comes to managing reputational risk is holistic it can apply across the board and it's there.
[00:10:46] So there's a lot here when you listen to this and you hear me talk and you think, gosh, and many of you might be scratching your head and wondering, Oh my gosh, there's so much here that I'd never thought of. That's the point. What I wanted to do today was shine a light on areas of risk, the way that different areas of risk apply to your business and shine a light on those so that you're thinking about them so that you have awareness.
[00:11:07] Like I said at the beginning, my belief is that forewarned is forearmed, which means if you're aware of these things, we've shone a light on them. So now you're thinking about them. We can manage them. We can put processes and systems in place. We can strategize to put mechanisms in place to manage or mitigate That risk going forward in your business and when we're mitigating our risk, this is when we get true peace of mind and confidence.
[00:11:31] You know, that sinking stomach feeling that you get sometimes when you're lying in bed at night or you're sitting down for your cup of tea after dinner and you think, Oh gosh, I don't know how that went today. Or, Oh, that just didn't feel right. Or geez, I don't know if I've done that right. If I've missed something, you know, that feeling, you know, that feeling, it's a sinking stomach feeling is what I refer to it as because it's in the pit of your stomach and you think, Oh, just don't know there's uncertainty there.
[00:11:51] There's real uncertainty there. Managing your risk removes that peace of mind, inner calm, knowing I've got my ducks in a row. You can't control everybody. We don't have a crystal ball, but we can position you and your business as best as you possibly can going forward. So you don't have that sinking stomach feeling.
[00:12:11] You don't have those sleepless nights because, you know, you are as well positioned as you can ever be. And if something happens, you are in a prime position to deal with it. That's strength. That's power. That is peace of mind. So now that we've talked about it, the really unpleasant and not so sexy topic of risk, I've given you some food for thought.
[00:12:30] So have a think about it. And please join me in next week's episode, because I'm going to talk to you about your risk mitigation strategy. So what it is you need to be doing to position yourself to manage your risk. To minimize your risk and to set your business up for success. If you know someone in business who you think would benefit from this episode and next week's episode as well, please take a moment to share.
[00:12:50] It would mean the world to me because that is how we get the podcast into the ears of even more business owners and really help elevate and enrich those lives. as always.
[00:12:58] Thanks so much for listening. I'll catch you next week.
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