Remain Competitive Without Risk
Can a business remain competitive (and ultimately grow and become more profitable) if it is threatened by risk? What if risk becomes more than an “exposure”, but a reality?
It is important to ensure that risk specifically affecting the business owner is avoided or at the very least limited. Business owners often don’t realise how their lack of planning or structure of their personal affairs may adversely affect or even ruin their businesses.
For example, if a business owner is married and the spouse becomes insolvent, the creditors of the insolvent estate could claim against the income stream of the business depending on the marriage laws of the land. Similarly, the death of the business owner, specifically where no provision was made for the manner in which the business is to be continued or sold, may result in devaluing the business.
It is therefore important that business owners conduct their affairs of a personal nature with as much responsibility and care as they would structure or run their own businesses.
Most businesses never include legal structure or risk aversion strategies in their budgets when starting out. As a result, business owners often trade without a separate legal personality (they do not register a company for conducting the business) and download documents found on the internet or “make it up as they go along” which frequently results in avoidable disputes.
It is a well-known fact that businesses are most vulnerable in their first five years of existence. During that time, dealing with an avoidable risk may not only cost the business money it does not have; it may also effectively destroy it by ruining its reputation.
After five years, the business is not so vulnerable from a cash flow perspective, but the risk increases as the business grows, e.g. landing bigger contracts may result in expenditure required to service those and less favourable payment terms (no longer on a COD basis for example).
It is therefore crucial that businesses are structured correctly from the outset and comply with all the relevant rules and regulations. A business cannot compete in the marketplace if it does not avoid or ring-fence risk. Being competitive and avoiding risk are therefore inseparable concepts that cannot exist in isolation from one another.
Are you managing business risks effectively to remain competitive?
Adapted from an article by Nicolene Schoeman-Louw, Member