3 Most Dangerous Risks that Can Ruin Your Business Growth
Running a business is undoubtedly hard. No matter how good your idea is, it goes downhill if you do not plan a good strategy. Since the nature of business is dynamic, you cannot stick to one approach. It should change over time so as not to suffer from losses and be lagged.
To withstand the cutthroat competition, you need to think out of the box. From marketing strategy to customer experience, everything should be better than your competitors to survive.
Business is subject to risk, and you must plan for them to avoid any adverse ramifications down the road. If you do not have a plan for managing risks, you will struggle to achieve your goals.
Some risks arise within the organization that you can deal with efficiently as you have full control over them, but some chances are subject to external factors like economic risks.
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Though you do not have full control over such risks, you can still prepare yourself to manage these risks. Here are the three most dangerous risks that can ruin your business if you fail to plan for them.
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Though you do not have full control over such risks, you can still prepare yourself to manage these risks. Here are the three most dangerous risks that can ruin your business if you fail to plan for them.
Economic Risks
Economic conditions are never static. Inflation, change rate, new government policies are some of the factors that have a direct impact on businesses. If these changes are favorable, business profits go up.
However, business goes downhill when these changes are not favorable at all. Economic risks are one of the significant risk factors that is very hard to prognosticate.
If you do not have a financial risk management strategy, you put the profitability of your business entirely at stake. Before you plan a robust strategy, you should know the types of economic risks.
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1. Higher interest rates
Interest rates go up when inflation is predicted. Higher interest rates have a severe impact on both an individual and the economy. When interest rates go up, the cost of borrowing increases, the size of the mortgage and debt repayments hikes, and both consumption and investment fall. If you have been in the financial sector, your business profitability will drastically go down with an increase in interest rates.
2. Increased wage rate
Another economic risk factor is the rise in the wage rate. It can whittle down your profits if the market value remains static or the same results you will experience when the production cost remains static, and the market price lowers down.
3. Changes in taxation policy
Taxes have a significant burden on your profitability. If new taxation policies are introduced, or import and export duties rise, business profits will fall straightaway.
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As you know that you do not have control over economic risk factors, you should have saved as much money as possible to counteract these changes. Steady cash flow is crucial for running any business. Make sure that you have the right amount of money in a reservoir. Having surplus cash can help you meet increased expenditure due to changes in economic conditions.
Financial Risk
Every business is subject to financial risk, and not all of them are under your control. It is all but impossible to predict financial risk, yet you need to have a plan to bear up against them. Here are the types of financial risks:
1. Market risk
The definition of market risk is very vast. Your business will face adverse repercussions if:
- The market value of your shares drops.
- The government introduces new policies that intervene in the manufacturing and pricing of your product.
- The demand for your product drastically plummets due to your competitors.
- Lack of financial support from government organizations in case of an economic downturn.
- You fail to adopt new technology.
2. Credit risk
Credit risk means evaluating whether the borrower will make repayments on time or not. Evaluation of credit risk is crucial before investing in start-ups. You should ensure that the company will pay your money back on time.
Credit risk also involves customers who are unable to pay for your goods and services. The high amount of bills receivables can lead to reduced cash inflows, and as a result, your business growth will be hampered.
3. Liquidity risk
Liquidity risk arises when you are unable to meet your short-term debt obligations as cash is locked up. The best example to understand this risk is you have left with inventory unsold after the cancellation of the order.
It not only leads to the high cost of inventory management but also reduces cash inflows, making you unable to pay off your liabilities. Under such circumstances, you will sell the inventory at reduced prices.
However, liquidity risk can still hover because there might be the insufficient number of buyers. Another scenario when the liquidity risk is high is you have invested in assets that have no resale value.
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Reputation Risk
For the long-term growth of a business, you need to build a reputation on the market. If people like your product or service, they will be encouraged to invest in them time and again. However, it is not easy to win the trust of your target audience.
Product failure, lousy customer support, no after-sale service, bad media coverage, and brickbats on social media platforms are some of the causes of tainting your reputation.
You can mitigate this risk by keeping tabs on your competitors and critics and your customers’ comments on social media platforms. You should provide round-the-clock service to your customers and make sure that your after-sale customer service is excellent. If your customers are not happy, you cannot build an image like a brand.
You can mitigate this risk by keeping tabs on your competitors and critics and your customers’ comments on social media platforms. You should provide round-the-clock service to your customers and make sure that your after-sale customer service is excellent. If your customers are not happy, you cannot build an image like a brand.
In the Nutshell
Risk management is essential for the growth of any business. You should have a strategy to bear the consequences of these risks. Hire an expert to help you with risk management policy. It takes a lot of time and money to frame an effective strategy.
If you do not have enough money, you can take out external financial help or something like no guarantor loans or personal loans. Bear the cost of expert hiring with these funding sources, and take your business to new heights.
