Those who have studied SME failure rates will be well aware that small business is in fact risky business. Typically, 25% of UK SMEs fail in Year 1 and almost half of all businesses started fail within their first 3 years.
However, it need not all be doom and gloom. Ensuring compliance with relevant regulations, along with a robust risk management strategy can give a small business an increased chance of survival and longevity.
Taking a strategic approach to risk mitigation
The easiest way to put your business at risk of failure is by failing to plan for risk effectively. Putting together a robust business plan, including a number of ‘what if’ scenarios, will go a long way to giving your business the best chance of mitigating potential risks.
This plan should encompass a number of strategic risk areas; competitor and marketplace analysis and more specific compliance requirements such as PAYE and pension auto enrolment must all be given due consideration. Interestingly, reputation is now seen as the top strategic risk for SMEs according to a recent Deloitte study, and reputation management should play a key part in your risk mitigation planning.
Taking advantage of expert advice and guidance when putting this plan together would be a prudent use of both time and money. This could prove critical in ensuring risks and managed robustly, and could even identify risks that may not have crossed your mind as a business owner.
Don’t fall foul of the law
One source of expert advice often overlooked by SMEs, especially in the early stages, is the legal profession. Whilst legal advice can be expensive, it could be considered something that a small business cannot afford not to have. For example, ensuring that contracts are in place between the company and its employees, and even between directors, is essential to protecting the company in the event of any dispute.
Seeking advice on the legal implications of running a business will also encompass the strict compliance requirements imposed by HMRC or other regulatory bodies.
In addition, the globalised, competitive environment that businesses currently operate in has made it increasingly important for SMEs to protect their intellectual property. Ideas can often be as valuable to a small business as their physical assets, and although you can’t protect and idea, an intellectual property expert can help you to protect how it is used.
Insure to ensure your risks are covered
The value of physical assets within a business can often be considerable, so protecting these assets against risk should be given significant attention by all business owners.
Often accompanied by a feeling of dread, insurance is an aspect of risk mitigation often overlooked by SME owners, simply because of the perception that it is expensive. Insurance can indeed be costly, especially for businesses considered high risk, but it can prove invaluable in the event of the unexpected.
General insurance policies typically provide the business with compensation in the event of a financial loss arising from a number of different situations. Insuring the contents within a business premises for example would come under the general insurance banner.
Other insurance policies exist to provide a business with cover in areas where they feel exposed to the potential risk of a claim. Professional indemnity insurance is one such type of insurance. This provides the business with cover in the event of a negligence claim from a client. The specifics of professional indemnity insurance will differ depending on the business seeking cover, but it is typically used within the medical profession, or by companies offering professional services such as consultancy or legal advice.
Despite the risks that exist, there is an abundance of support available to UK business to ensure that you remain on the right side of regulation, and it is this, coupled with a robust risk mitigation strategy that can greatly increase your chances of business success and longevity.
If you would like to discuss how your business could mitigate risk, stay compliant or any of the topics covered above, please contact us through the Tectona website or call Mark Nicholls on 07818 407061 or Ronnie Epstein on 07543 275902.