9 Business Risks Every Entrepreneur Should Plan For

Risks are inevitable when you decide to take the path of entrepreneurship. Uncertainty always runs high because of the financial and emotional investment in the venture. These challenges are part and parcel of the game and need to be envisaged to act in time before it harms the business. Most entities are faced with the same threats that can damage the foundation of the system. Thus, if you plan to purchase a business for sale in South Africa, you must be prepared to face these obstacles and know how to deal with them.

Entrepreneurs need to have a risk management strategy that helps them to assess the risks associated with their endeavours and offers a roadmap to minimise them. So here is a list of the most common business risks that every business owner should evaluate and aim to reduce through planning.

1. Economic Risk

The dynamic marketplace is an unpredictable arena where massive fluctuations can ruin years of investment. If the economy tumbles or goes through a downturn, sales of most businesses go down. The rate of unemployment increases and consumer spending plummets. It is vital to be prepared for a crisis situation where the sales may drop drastically due to an economic factor. The recent COVID-19 pandemic brought forth the same challenge for small business owners. Therefore, you must use the capital judiciously and make sure that money keeps flowing into the organisation.

2. Market Risk

The market is cluttered with similar products. Every brand needs to work on creating a unique selling proposition for its offering. The entrepreneur must keep assessing the market to identify the contenders and how they are faring. Examine the response of the customers towards their products and how they are utilising marketing programs to attract new buyers. You cannot be complacent in the highly competitive environment and need to reinvent to make sure the rivals are not eating away your market share with a better offering.

3. Technological Risk

Technological advancements are exceptionally quick and bring a paradigm shift in the working mechanism of organisations. The digital revolution was one such disruptive change that forced businesses to think about moving their businesses online. It proved to be a blessing in disguise as the pandemic ensured that consumers resorted to online shopping and contactless deliveries. Organisations that had evolved with times managed to remain unscathed through the crisis. Thus, staying on top of technical changes and implementing them is of utmost significance.

4. Financial Risk

Businesses are gripped with the risk of running out of capital, which is often the cause of their failure. Thus, entrepreneurs must be ready with their financial plan and future projections of cash flow to achieve the milestones. The plan should cover working capital, emergency funds, debt repayment and investment in stock and equipment. It should have details of the amount required to reach break-even and the time before the profits start pouring. If you do not plan for this, you can end up spending more than required. So, maintain a positive cash flow and work on increasing the revenue streams to steer clear of bankruptcy.

5. Funding Risk

Businesses that get funding from investors in lieu of equity have to be certain about the expectations of the investor. Some of these high-net-worth individuals may put their foot down and demand expanding the product line, while the entrepreneur may want to focus on the existing offerings. The disagreement can make them stop future funding and support, and this can lead to a shortage of capital. Thus, you must choose the investors carefully and understand the terms of their intervention to avoid any disputes later. Research about their background and speak to other business owners who have received funding from them.

6. Fraud and Theft Risk

With more and more businesses embracing the digital pathway, the risk of data breaches has increased. Cyberattacks have soared, and data theft is the biggest risk in the current conditions that have the capacity to destroy a business. Every business has classified information related to products, procedures, employees and customers, and this data comes under threat from attackers. From malware, phishing, and ransomware to cloud-based threats, there are tons of crimes taking place in the commercial world. Thus, it is highly crucial to have a cybersecurity team onboard and tools to identify frauds and breaches.

7. Status Risk

The image of the brand is the holy grail of business management. It can be negatively impacted by a scandal or disgruntled customers who write detrimental reviews about the company. The negative publicity can sway the sentiments of the target market and lead to the collapse of sales. It can completely crush the future prospects of the entity in the current times of heavy social media usage where news is circulated like wildfire.

Therefore, business owners need to work on reputation management. They need to monitor social media channels to check what is being said about the brand and pacify unhappy customers. The business should constantly work on creating a credible and popular image for the brand.

8. Operating Risk

The processes and procedures of a business can often fail due to a mishap or a human error. Sometimes you may end up manufacturing a low-quality product due to the mismanagement of resources, or a natural disaster that may affect the supply and distribution chain. Technical issues like a server outage or lack of experienced and certified technicians can cause a delay in production. There are plenty of operational challenges that can disrupt the working.

Thus, you need to have quality checks at every stage and maintain the highest standard of service. Follow the industry benchmarks to provide your customers with the best quality of products and service.

9. Compliance Risk

Businesses operating in South Africa have to comply with a variety of regulations. If they fail to do so, they have to deal with penalties and other challenges. The common laws include industry registration, zoning laws, labour laws, workmen’s compensation, Compensation For Occupational Injuries And Diseases Act, health and safety policy, tax and vat registration, etc. The entrepreneur must be acquainted with these laws and hire professionals to track compliance and avoid fines.

Conclusion

It is human to make mistakes that can lead to organisational trouble. Also, some risks are unavoidable and may crop up from nowhere. Therefore, if you plan to purchase a business for sale in South Africa, make sure you have the protection plan in place to insulate your organisation from the impact.