12 Costly Risks for Business

Author: Stewart Clark / Date: November 23, 2014

Category: Risk Mitigation

Murphy’s famous law about what could go wrong is just as applicable in business as for any other part of life – with the key learning being that you always need a Plan B!

The majority of risks in business can be predicted and quantified as part of an assessment of the business and how/where it operates. For most businesses however, stopping to undertake this type of assessment is rare – let alone implementing mitigation plans.

So in the absence of a specific risk analysis of your particular business (which is naturally the best option), this article highlights 12 common risk areas where businesses should have an effective Plan B….just in case.

# 1 – Owner Succession

The “what happens next” is a real risk for a sudden and unexpected departure of the owner. To combat this, there needs to be a clear plan for who will run the business in the short term whilst longer term arrangements are worked through. This can be a complex and expensive issue as not only has the business lost a key leader, but it has also likely lost its capital backing. Refer also the points under Key Person below.

# 2 – Loss of key contract

Concentration risk is something which businesses should be aware of, and whilst the money may initially be attractive – it is essentially like putting all of your eggs in one basket. Your business becomes very dependent on that contract and thus extremely susceptible if the contract fails. Focus should be on having a good balance between the number of clients and the size of contract/sales.

# 3 – Loss of site

Insurance should naturally be held for premises and business continuity, but for businesses who have very specific needs – be they location, access to special utilities, size, access requirements or fit out, you need some specific planning. As a general rule – the more specialised the requirements, the greater the level of fall back planning required for a Plan B site. Good insurance may ease the cash burden of an incident, but the work you put into planning for an alternative site will determine how quickly you are back in business.

# 4 – Loss of data

In an ever increasing digital world – data protection is vital. Loss of data (product, client, financial, marketing, employee or process/technical ) could all bring a business to its knees. My preference is to seek some professional guidance to ensure that you get the right back up solution for your business. Consider items such as; storage capacity, frequency of backup, the data safety/security, which device/s (ie. servers, computers, laptops, tables, smartphones), the ease and time to restore a backup, available backup support and test protocols/procedures.

# 5 – Dramatic change in supply chain

The greater the number of links in your supply chain, the more likely something will fail at some point. To mitigate this, maintain a panel of alternative product suppliers and service providers, inclusive of their pricing and availability. Some businesses deliberately limit the volume of business transacted via a single supplier/provider to spread the risk.

# 6 – Loss of key equipment

Loss through fire or theft should be covered under a well-planned insurance policy, but consider what happens if the equipment simply breaks down. Check out any warranty support, options for spare parts,

the availability of suitably skilled mechanics/technicians and consider outsource options, back up machines or stockpiles of product. Business situations vary considerably, so it’s important that you assess and mitigate your individual circumstance.

# 7 – Loss of critical utilities

If loss of power, water or gas is an issue for your business, then consider your alternatives. This may involve a period where you simply accept the down time, but then also have a next stage where you have generators or fall back supplies to rely on. Business disruption/continuity insurance should also be considered here, but check out the terms closely to ensure that it mitigates your risk.

# 8 – Loss of key person

Reliance on a key person is always a risk for the small to medium business market, so it is important that you have documented processes and cross trained staff to cover. If the scale of business is not large enough to allow this, then key person insurance is your most likely option – noting that key personal insurance should be considered for any critical employee.

# 9 – Quality risk

Every business has quality control requirements, albeit some are more “critical” than others. Quality can impact people, process or manufacturing/supply, but regardless of the issue – consider the down side implications of something going wrong. The list of possible issues is endless here, but briefly – consider liability, replacement, re-manufacture,  re-service aspects and cashflow due to loss of client.

# 10 – Loss of finance lines

Understand the facilities you have in place along with their terms and conditions (including any performance covenants) – operate within these and you have minimal chance of losing them. If you are likely to breach any conditions, then proactively raise these with your bank and negotiate a variation. Multiple financiers can also provide an element of protection, but look out for cross default clauses, as a default with one may trigger a technical default with another.

# 11 – Big bad debt

The size of how big this needs to be will vary from business to business and depend on their cash and capital resources. If you are susceptible in this area consider: credit checking for all commercial debtors, debtor insurance, registration of security against the debtor (PPSR), progress payments and close debtor management.

# 12 – Loss of a licence or critical certification.

Consider these sorts of items as the ticket to the game, so without the ticket – there is no game. Firstly consider what certifications your business is reliant on, secondly review the circumstances for how they could be cancelled or withdrawn – and then build a mitigation plan around these.

Regardless of the business or its industry, every business has risks which need to be mitigated. The cost of ignoring them can be large, so prudent consideration of a Plan B is a worthy investment. 

STEP BACK – assess your business against the common risk points and then challenge how ready you are for something to go wrong. Don’t gamble with the viability of your business, act now and don’t leave it until it’s too late!


To discuss how this impacts your business, drop us a line at [email protected] or call on 1300 626 488. We provide a range of services to double business bottom lines and buy back owner time – so we are happy to discuss if you can help you.