Four Ways of Optimizing Business Risk

Optimizing Business RiskSetting up your own business is always risky and it is impossible to have a completely risk-free work environment. What is possible (and desirable) is to optimize risk. Four ways in which you can reduce business risk are through company structure, diversification, insurance and tracking.

 

  1. Company Structure: A sole-proprietorship is considered a good option for someone who wants full control of the business. However, it is very risky because the sole-proprietor is responsible for all liabilities and in case of a problem her personal assets are at risk. To overcome this element of risk a limited liability company is recommended. In this case, the company has a separate legal existence so in case of litigation only the company assets are at risk.
  2. Diversification: At a personal level, when you invest you choose a varied portfolio that consists of low-risk, liquid cash as well as some high-risk, high-return projects. The same holds true at the business level. When planning to set up a new venture it is a good idea to have a whole bag of products in your mind. You may choose to launch only one of the products but keeping the rest as back-up can help reduce risk. The business environment is constantly evolving so as your company grows, you may find new opportunities for diversification. You may also choose to diversify your business by location. In this way, country specific risk can be minimized.
  3. Insurance: The financial health of your business is important and by using a trust worthy insurance partner you can optimize on business risk. Before purchasing the insurance you need to be absolutely certain about what exactly your insurance policy covers.
  4. Tracking: When executing your business plan, it is extremely important to track results and alter actions based on the results. Financial planning entails measuring actual performance against planned and conducting a variance analysis. The same rule applies in the domain of Marketing. For example, if you use call tracking you can monitor the performance of individual marketing channels and campaigns. You re-allocate your marketing dollar to the channel and campaign that gets you the most results. In this way, you are able to reduce the risk of throwing away money on channels that are yielding no results.

At the end of the day, your appetite for risk will shape your decisions. Given your risk appetite, the above tips can help you make informed business decisions that optimize risk.