Business Risk Analysis – An Often Overlooked Management Task
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The question is asked “How’s Business?” The answer “business is terrific, our sales are increasing significantly and profits are better than ever.” But things can change significantly and rapidly without warning!
Recently, a local agricultural company lost its most significant customer and why? Simply because it didn’t properly assess the support of the exchange rate between the Canadian dollar and the American dollar. The strong economy in the U.S. coupled certain other factors has caused the U.S. currency to rise in comparison to the Canadian dollar, thus making it cheaper for U.S. companies to buy Canadian products.
What can be done about this situation? Maybe nothing, but management that regularly assesses business risk might be more prepared for a stinging blow such as the loss of a major customer or may have instituted strategies and tactics to effectively compete with such events before they occur?
Performing a business risk analysis is an integral part of managing a larger company, particularly a publicly held enterprise. However, many small business people never pay attention to such risks. The purpose of such an analysis is to determine where business risks lie and to assess the probability that such risks will occur. In some cases, a formal analysis may be performed while in other cases the top management may simply discuss the risks an entity faces.
Either way, business risks are always present and need to be understood. Some of the issues management may face are:
- Safety
- Legal and Regulatory
- The Economy
- Environmental
- Revenues and Potential New products
- Exposure with Customers
- Costs
- Security Breaches
- Management and Loss of Key People
Assessing business risk is an ongoing necessity and should be continually addressed and monitored. If you haven’t done such an analysis, it might be something to put on your managerial agenda. Remember, serious risks exist and can have a significant and immediate impact on the business you’ve spent a lifetime building!
About the author
Joe is a 2004 graduate of Mount Saint Mary’s University, with a bachelor’s degree in accounting. He is also a 2000 graduate of Archmere Academy in Claymont, Delaware. Joe started with the firm in 2002 as a part-time intern, joining full-time in 2004.
Since then, he has worked with a myriad of clients, including entrepreneurial firms, agricultural businesses and nonprofit entities, including those with OMB A-133 audits. Joe, along with the firm, contributes to Toys for Tots, Goodwill Industries, as well as several other community organizations. He is a member of the American Institute of Certified Public Accountants and the Delaware Society of Certified Public Accountants.
