1. Measuring the risk
In order to mitigate potential risks, an entrepreneur needs to measure a risk before he takes one. Most entrepreneurs specialise in risk weighting. They don’t lose much if the strategy fails, but if it succeeds, they benefit a great deal by taking the risk. Therefore, they make their company more viable and profitable by taking simple methods in their plan of action.
Effective entrepreneurs adhere to the core concepts of risk management. They search for opportunities where only a certain amount is lost if they fall short. And the best entrepreneurs never put more than they can afford to lose at stake. In the event that the current programme does not work out as planned, they still suggest Plan B.
Having these parameters helps them to create viable companies and profitable by taking simple methods in their plan of action.
2. Seeking a new opportunity
Entrepreneurs also have the opportunity to recognise flaws in the market and find solutions to the issue. Pursuing a new opportunity is a potential challenge, but entrepreneurs have the opportunity to learn a lot from it – if their solution is feasible. First mover advantage is also what pushes them to further innovate. Although savvy entrepreneurs understand their limitations, they don’t allow their vision to be limited by a lack of resources.
Entrepreneurs see a consumer need and do all they can to make a business option possible, even though at the moment they don’t have the resources available. For them, the threat is not finding a new opportunity and their businesses remaining stagnant.
3. Insurance is a must
Insurance shields the entrepreneurs from lost liabilities, accidents and illnesses and passes the risks to insurance companies. By insuring all sorts of raw materials and processes, in the event of a company or scheme failure, they have a chance to lose even less. Insurance may not reduce the risk of the company, but you can use it as a financial instrument to protect against risk-related losses. It guarantees that you will have some financial compensation in the event of a failure. In any event, this can be critical to the survival of your organisation.
Some costs, such as the harm to the reputation of a company, are uninsurable. On the other hand, insurance is compulsory in certain regions.
Insurance firms also want assurance that risk is being handled. They want proof of the efficient operation of processes in place to mitigate the risk of a lawsuit until they have protection.
4. Cut back on financial risks
The key to risk management is to reduce financial risk by monitoring your receivable accounts to mitigate outstanding balances and to recognise bad credit risks early in your business. It is possible to introduce credit and payment requirements to further mitigate financial risks, defining which credit ratings and payment histories are appropriate. Aim to minimise outstanding loans and funding needs. Monitoring the growth rate and enabling the business to expand to a sustainable degree is very critical. Ensuring financial stability is the greatest ease in risk management.
5. Learn how to anticipate and predict risks
Let the loss not come as an unexpected surprise. The definition, marketing plans, back-ups and the post-success plan need to be extensively prepared. If you manage to almost predict a risk, you have a chance to reduce it. Often, since you can foresee a risk, you can establish a risk management plan to reduce its consequences and mitigate it rightly.
Entrepreneurs are not necessarily risk takers. People who are about to start projects are no more risk-tolerant than others. However, entrepreneurs are more comfortable with risk over time.
Many entrepreneurs realise that the challenge of starting a new company is inherent. They also realise that there is no creativity, success and reward without some risk and they grow more accepting and adaptive with having risks, they rather begin to anticipate risks.
Blog Author: Chelna Gothi, Cleared IRM’s Level 1 Enterprise Risk Management Exam