Managing a thriving business comes with its share of risks. At times, these risks and their impact on your bottom line are tough to predict. Yet, it’s important to be aware of some common risks that may hit your business, placing it in jeopardy.
In this post, we have enlisted seven business risks you should watch out for and what you can do to prevent them.
1. Ambiguous Contracts
Business contracts are made to achieve certain goals while safeguarding the interests of the involved parties. They are needed to set the terms and agreements between multiple entities. However, vague or ambiguous contracts can attract a host of issues for businesses.
For instance, in employment contracts, it’s critical to clearly outline your relationship with contractors and specify each term of the contract. Avoid settling on vague terms or descriptions of each party’s rights and obligations in the contract. Failing to ignore this can lead to legal disputes in the future.
Seek guidance from a business attorney to create contracts that are devoid of ambiguities. Your attorney will help avoid conflicting terms, unenforceable provisions, and vague terms and timelines that can cause issues later.
2. Data Breaches
A lot of employee and customer personal data is stored on the company websites. Hence, they are the prime target of hackers who are highly motivated by money to get hold of sensitive information.
Hackers are after sensitive information and intellectual property like company documents, vendor portals, and customer portals. Moreover, they compromise websites by hosting malware such as ransomware and crypto mining that can spread across the internet in no time.
The global average cost of a data breach is $3.86 million. Yet, many companies aren’t fully prepared enough for such crippling breaches.
Aim at effective enterprise risk management by focusing on up-to-date security solutions and fraud detection tools. Invest time in securing networks, installing firewalls, and encrypting data. Also, train your employees to detect potential security issues and how to protect company data.
3. Business Operations Risk
Any internal or external business risk that negatively affects business continuity would be classified as operational risk. For instance, a natural disaster, a fire, or a server outage could lead to operational failure and impact a business in terms of time, money, and reputation.
Whether it’s a people or process failure, businesses should prepare for these operational risks. Have a business continuity plan in place. This will provide a way for your team to think about what could go wrong and the proactive steps to be taken to manage the risk.
For instance, an increasing number of companies are moving to cloud storage to safeguard company data and reduce people’s failures.
4. Compliance Risk
Businesses have a sea of laws and regulations to comply with. For instance, they need to comply with the regulations of the Internal Revenue Service that outline when to collect payroll tax. As a business owner, you should be aware of and meet the requirements of these regulations or it could attract large penalties, back taxes, and personal liability.
Similarly, the recent data protection and payment processing compliance impacts every aspect of business operations. Stay well-versed with the applicable laws from federal agencies like the Occupational Safety and Health Administration (OSHA) to minimize compliance risks. Always provide your employees with the OSHA training program to make sure the employees are up to date with all workplace safety precautions.
Every business should minimize compliance and regulatory risks. You can track compliance by joining an industry organization, reviewing government agency information, and seeking advice from experts who specialize in compliance and regulations.
5. Reputation Risk
One negative customer review, bad press, or product failure can significantly damage your business reputation, causing your revenue to plummet. Moreover, the plethora of digital platforms available today has amplified the speed and scope of reputation risk.
Hence, every business should leverage reputation management strategies. This will help your team monitor what people are saying about your brand online and offline. If you see any negative comments and reviews, it’s important to respond to them immediately. This will help improve your reputation and win customer loyalty.
6. Litigation Risk
Litigation risk can originate from anywhere. It could be an employee claiming that they’ve been ill-treated or discriminated against. At times, a customer could accuse a business of not providing the service or the product promised in an advertisement. It could also root from an employee, customer, or visitor who’s injured at a business site, thereby attracting a personal injury case.
If found liable, the business is on the hook to pay the penalty, the court costs, the medical expenses, and the legal fees. Engaging in any kind of litigation is not just expensive but also time-consuming. Hence, it’s wise to engage a good business attorney who can protect your business and minimize the impact of such litigation risks.
Further, it’s important to cover your business for the liabilities. For instance, to avoid a personal injury lawsuit, it’s advisable to go for CGL coverage (commercial general liability) that can protect you in case someone is injured at your business premises.
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7. Competition Risk
Every business is faced with some kind of competition. For businesses leading in their domain, it’s natural to get comfortable with success. This often prevents them from devising strategies that will foresee market and competitor risks. Moreover, they fail to look for avenues for continual improvements. So, if a smaller player enters the market with innovative offerings, the leader will lose customers and a considerable market share.
Hence, every business should continuously reassess their performance and come up with products and services that are relevant to their audience. This will help them maintain a strong and interactive relationship with their customers.
Finally, businesses should keep an eye on the marketing strategies adopted by their competitors on social media platforms and other digital channels.
Business owners face several risks when scaling their ventures. A few risks are more dangerous than the others but all of them negatively affect your business’s bottom line, customer base, and reputation. Hence, it’s important to be aware of these risks and manage them proactively.
The information shared in this post will help you address the top business risks and achieve your goals.
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