Business owners need to accept the harsh reality that they cannot conduct their commercial operations without incurring financial risks. The main concern of these business owners is to ensure they generate enough revenue to sustain their market activities. Only then can they expect to see the growth of their businesses over time. Otherwise, they have no option but to liquidate their businesses with a short period of time. This is a situation which these business owners want to avoid at all costs. This is why they need to implement an effective risk management strategy for their businesses.
Michael Saltzstein – How can business owners reduce financial risks?
Michael Saltzstein is a popular business leader from America who specializes in risk management and corporate insurance. His area of expertise is in loss control, crisis leadership, coverage evaluation, growth strategies, and implementation of occupational safety policies. He even assists many of his corporate clients to identify alterative revenue sources to finance their potential risks.
Heexplains four types of risks can have serious financial consequences for business owners. They are strategic, compliance, operational, and reputational.
- Strategic risks occur when business owners lose sight of their mission and vision. The business plans the owners adopt cannot help them to achieve their organizational goals.
- Compliance risks take place when business owners fail to obey the regulations that the government lays down while conducting their market operations. As a result, they end up having to pay hefty fines, which depletes their cash reserves.
- Operational risks result when business owners face errors committed by their employees, failure in policies, and systems.
- Reputational risks happen when the image of the owners get tarnished in the market. This results in distrust among their trading partners, loss of valuable customers, and revenue.
Fortunately, he points out that business owners can mitigate these four risks by executing the following three strategies:
1. Create an emergency fund
Business owners should seriously consider setting aside a portion of the current profits to create an emergency fund. Over time, they should allow this fund to accumulate. The owners should not withdraw money from the fund unless it is necessary.
2. Generating alternative streams of revenue
Besides creating an emergency fund, business owners should consider generating alternative revenue streams. In the process, they can earn money from more than one source. It eases the pressure on their cash flow position. This enables them to overcome various kinds of financial risks, including those which are beyond their control.
3. Consider Investments
Business owners need to take time out of their busy schedules to know about various types of investments popular in the market. They should even consider investing in policies that offer them lucrative returns.
Michael Saltzstein clarifies that financial risks have the potential of ruining a business in the market. Fortunately, owners can minimize such hazards by implementing effective financial risk management strategies. They can set up a separate emergency fund, invest in lucrative investments, and generate alternative revenue sources. In the process, they are able to improve the financial stability of their businesses.