Business owners appreciate knowing all is well with the enterprise. A key source of management’s peace of mind is an effective, comprehensive risk management system. Confident owners are grateful for risk reduction strategies. AB Financial Group recommends these top risk reduction techniques. We partner with companies just like yours to implement risk reduction methods, prevent and mitigate damage to the company’s reputation, protect revenue and boost the bottom line.
Gather the Team
Begin by delegating a risk management team, charged with the task of identifying and reducing risk. Partnering with AB FInancial Group as a member of the risk management team adds the protection of financial, legal, regulatory and accounting expertise for identifying risk priorities and targeted reduction strategies. Members of the team will develop a clear view of all possible risks and threats to the company within the larger marketplace, and design prevention and mitigation plans against loss.
Be Realistic
Thoroughly consider the range of potential risks to the enterprise. Rank the possible threats by the degree to which they are likely to occur or likely to have a major financial impact. Consider this universal risk management grading scale:
- Highly likely
- Some possibility
- Minor possibility
- Unlikely
Prevention and mitigation plans for the highly likely risks are management’s top priorities. An example: if transportation costs are certain to rise, what actions can be implemented to streamline supply chain and delivery functions thereby mitigating higher transportation cost? Doing the hard work of problem solving the negative impact of Grades 1 and 2 risk priorities goes far to protect the entity. Don’t stop there. Grades 3 and 4 risk events must also have a solution. Protecting the bottom line in every instance is effective risk reduction.
Quality Assurance is Insurance
A strong marketplace reputation is the first line of defense against risk. A good reputation is essential. It relies entirely on a quality customer experience and exemplary customer service, reflecting the excellence of the business. Achieve it through a program of quality assurance. Quality assurance tests the product and delivery quality through evaluation and data analysis to identify areas for constant improvement. Products and services that have been tested and proven, provide a better customer experience. End to end, the customer gains the value of quality improvements, made regularly through the quality assurance program.
Insurance, Too
Protect from risk by securing insurance to protect against several types of potential threats to the business. In some instances, insurance is legally required to conduct business. In other cases, it makes sense to also include additional insurance policy protection. Assessing all liabilities and potential risks helps identify insurance needed. Insurance instruments may include:
- General liability
- Disability
- Workers’ compensation
- Data breach
- Commercial property
- Completed operations
Purchasing insurance transfers risk to the insurance company for the cost of the policy. This expenditure is typically lower than the potential loss from an uninsured risk event.
Control the Pace
Growth is a dynamic goal for a company. It is also risky. Controlling the pace of growth is essential. Why is that? Products and services suffer from quick growth that occurs without strong human resources to effectively support the growth. Growth requires new hires, contractors, supply chain enhancements, quality control scaling and more. Each function must be prepped to master the new level of demand such that quality standards of the customer service experience are maintained and constantly improved.
Commit to ongoing employee training, whereby leadership and expectations are reinforced, standards are clarified, and staff is given opportunity to expand and refine individual and team contributions. To control growth, base the pace on a clearly defined employee training system proven to create success while eliminating the risk of a downturn in quality.
Consider Restructuring
Risk generated via expansion, innovation and growth can be ameliorated with the decision to restructure the current entity, create a new one, or both. What does this look like?
- Eliminate personal risk – if not already achieved, restructure as a corporation or limited liability corporation. In these structures, owners are not held responsible for company debts and liabilities. Risk is assigned to the entity itself, a personal protection for owners.
- Found a new entity – When new risk is identified via growth, innovation, third party partnerships, expansion across state lines for production distribution, legal exposure, etc., it may be time to found a new company. This creates a wall between current assets and the risks inherent to the expansion.
AB Financial Group consults with businesses like yours to consider restructuring models and possible impact to the financial and accounting side of business. We have the expertise to create a seamless restructuring that reduces risk.
Quality Partners / Customers
Monitor partnerships and customers that are high risk. Build expectations up front with cost structures that impact vendor revenue if deliverables are unsatisfactory or delayed. Contract with customers such that terms and conditions are known ahead of time, and cost can be impacted with non-performance and payment delay. Consider a credit evaluation for big ticket customers. Eliminate risk by using partnerships and serving customers who meet your expectations.
Continually Asses
A risk reduction and management team committed to vigilance against risk is successful. Be constant with ongoing assessment of market factors as well as internal factors that flux within the ranking of known risk. Be watchful for new risks. Reevaluate the insurance position in relation to known risk. Evaluate the quality assurance systems and modify them regularly. Maintain control of company growth. Risk reduction is a success when it is part of the regular management function.
Let us partner with you in a risk assessment and risk reduction financial and accounting evaluation. You will be grateful you did. Contact AB Financial Group today. All Colorado locations, including Edwards, Denver and Colorado Springs can be reached at (970) 444-5586.
