Risk is the very essence of entrepreneurship, defining the journey that entrepreneurs undertake in the face of such challenges as financial storms, market competition, and changes in regulatory regimes. Proper risk management will therefore go a long way in avoiding them and ensuring long-term success. The first step of risk management is identifying the potential risks comprehensively. These range from financial risks, which include cash flow and funding, to operational risks such as supply chain disruption and equipment failure, market risks including consumer preference and state of economy. Regulatory risks, that are related to compliance and associated legal liabilities, and strategic risks arising out of bad decisions or technology disruptions, should also be factored in.
Once the risks have been identified, then a robust risk management plan needs to be developed. It would spell out mitigation strategies for the risk, which in this case might include a diversified supplier strategy to prevent supply chain disruption or creating a reserve of money for other unexpected expenses. In each case, that plan is being monitored and updated regularly to keep it responsive to business changes or the development of new risks. Any business that derives its revenues from a single source is in itself very risky. Entrepreneurs need to generate more diversified revenue streams by launching new products, exploiting new markets, or finding strategic partners. Good financial management reduces financial risk by keeping track of the liquidity and cost control with the possibility of diverse funding sources, like bank loans or investor funds.
One form insurance takes is in the area of risk mitigation; insurance helps companies overcome unforeseen events. Hence, liability insurance to protect against legal claims, property insurance against damage, and business interruption insurance against loss of income due to disruption of operations are all important investments. An organization wants to have a risk culture internalized and embraced at all levels. This it does through the training and education of employees on the practice of risk management and effective communication that reflects this culture of risk through action and various decisions. Keeping current with industry trends, changing regulations, and newly assessed emerging risks by continuous learning, networking with peers and experts alike, adjusting strategies accordingly will help ensure proactive management of risk.
In the final analysis, the best risk management entrepreneurship gives is that of understanding and controlling risks, not eliminating them. It is in the implementation of strategies that provide the entrepreneurs with a sail-through of uncertainties and therefore set up their businesses toward long-term growth and success.
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