Strategies for Managing Risk as an SME

Risk management involves making and carrying out decisions to minimize potential adverse effects of risk on a business. Failing to effectively manage risks can be especially damaging for small businesses with fewer resources and expertise.  With that in mind, here are five  strategies SMEs can use to manage risk in their businesses. 

Diversify your products or services. 

Offering a wider selection enhances customer satisfaction, create new income streams, and give you an edge over your competition. For example, if a tech shop selling mobile phones starts providing repair services – this can turn one-time customers into regulars

Educate yourself about the law. 

If you understand the laws surrounding your business, you can avoid potential roadblocks in the future. For example, if, if you enter a contract with another business, it’s important to understand the terms and consequences of violating this contract. Even small violations here can lead closure of your business by governing authorities

Keep clear, transparent records.   

Keeping clear records of important transactions like sales and tax payments reduces the risk of loss of income, conflict with clients, or fraud. Staying organized with paperwork also allows you to monitor your finances. For example, if you’re operating a clothing business, you can determine which products generate more income, enabling you to make decisions on which products to focus on.

When you need financing, acquire business loans from a formal, transparent source.  

Do your research and partner with a financial institution that you can trust. This means making sure that the repayment amounts, interest and fees are transparent. Informal sources like moneylenders usually have hidden costs and high interest, that increase your risk of default.

If possible, invest in insurance. 

By investing in insurance relevant to your business, you can avoid the costs of an unforeseen event. For example, a restaurant business opting for fire insurance. However, as insurance policies have exclusions, consult with an insurance broker to explain what is and what is not covered by your business insurance.