Internal Business Risks

Business risk is a growing concern, especially in today’s economy. Business owners need to take control of their companies, assess the risks inherent in both their firms and industries and determine how to best reduce these risks. Risk can be safety-related, financial or operational. However, for each potential risk, an effective system of internal controls can be implemented to reduce risk.

Business risks are circumstances or factors which can have a negative impact on the operations or profitability of your business. Business risks are generally classified into two major risk factors; internal factors (circumstances or events within your organisation) or external factors (those in the wider business arena).

Key Risk Identifiers

Often, businesses can be so focused on negotiating perceived threats in the greater business environment that they fail to identify factors within the company which could threaten its success. Take a look at these common internal business risks and think about how you think your business fares with regards to each one…

• Stability
  • The ability of a business to manage its finances; meet its debt obligations and return capital to its investors is integral to its success
  • A business which is financially stable can grow its profits more easily than one which is not; furthermore, investors, lenders and employees are more willing to engage with and invest in a financially stable company
  • In addition, management stability and branding stability contribute to a company’s overall impression of being a sound and stable venture
  • The reverse is true for businesses which are unstable; instability can quickly lead to decreasing profits and, ultimately, bankruptcy

• Resources
  • Having enough financial and human resources is crucial; if your business is lacking in either of these, you will find it difficult to achieve your business goals
  • Not only does a lack of resources impinge on the nature and scope of the work you are able to take on, but it can also impact significantly on staff morale

• Innovation
  • Whether it relates to product development, marketing and promotion or staff welfare, innovation is what keeps a business one step ahead of its rivals
  • A lack of innovation, therefore, can pose a risk to business success as a company becomes staid, stagnant and irrelevant in a changing marketplace

• Credit Risk
  • Credit is the lifeblood of every business firm
  • Sales on credit terms are almost universal and no businessman can avoid credit sales
  • But at the same time, there are also chances for credit risks
    • The debtors may fail to repay the debt

• Supply Risk
  • Profits are not certain when the production schedule is not certain
  • The businessman cannot go ahead with his production schedule when the supply is irregular
  • This type of risk cannot be avoided altogether

• Natural Disasters
  • Such as floods, storms, bushfires and drought
  • Disaster recovery

• Pandemic
  • Such as human influenza, swine flu or bird flu, coronavirus

• Legal
  • Such as insurance issues, resolving disputes, contractual breaches, non-compliance with regulations, and liabilities

• Technology
  • Such as computer network failures and problems associated with using outdated equipment

• Regulatory & Government Policy Changes
  • Such as water restrictions, quarantine restrictions, carbon emission restrictions and tax

• Work Health and Safety
  • Such as accidents caused by materials, equipment, or location of your work

• Property and Equipment
  • Such as damage from natural disasters, burst water pipes, robbery and vandalism

• Security
  • Such as theft, fraud, loss of intellectual property, terrorism, extortion and online security and fraud

• Suppliers
  • Such as issues within their business or industry resulting in failure or interruptions to the supply chain of products or raw materials

• Utilities & Services
  • Such as failures or interruptions to the delivery of your power, water, transport and telecommunications

The greatest thing about internal factors is that you have control over most of them. Changing internal factors often involves indirect costs. Some of the factors are a result of the way you run your business and a result of your decision making.

Let AAA Consulting help you to prepare a risk management plan to reduce risk and liabilities. Contact AAA Consulting for more information.