Connect with us

Risk Management

Taking the Risk Out of Risky Business

Work to ensure your business survives whatever man-made or natural disasters are thrown at it. Start evaluating the risks you might face and win the race before you’ve begun.

Entrepreneur

Published

on

Risky-Business

A. It’s a new year with new challenges, but there are many lessons from 2013 that you can use to ensure 2014 is a better, more productive year.

It’s also an excellent way to evaluate and approach challenges.

Here are eight questions to get your creative and strategic juices flowing.

1. What were the breakthroughs?

Hopefully you had a few: Grand slams, epiphanies and victories. Don’t move so fast that the lessons of those breakthroughs don’t sink in. Not only should you make time to enjoy them, you should deeply reflect on what enabled those breakthroughs and what principles, strategies or tactics can be applied to other areas of your business.

2. What were the breakdowns?

There is no upside in brooding about breakdowns, but there is an advantage in doing post mortems to find the causes. Look for the whats and the whys that contributed.

No breakdowns in the past year? Good for you. But certainly you had some moments where you came close to experiencing disaster. Look for hidden lessons in what almost happened and why.

3. Who delivered?

To he or she much is given, much is expected. Are you taking commensurate care of your best performers and business partners? Do you even know who they are?

You can ensure the longevity of valued relationships by giving them the appropriate appreciation, time and care. Sometimes we take for granted those who deliver and inadvertently damage the relationship. And maybe those who delivered in 2013 need new opportunities and rewards in 2014.

4. Who disappointed?

In a perfect world we could count on every business partner to do what he promised. In reality, not all partners perform equally, and we often waste time with those who disappoint us. Evaluate who you need to improve or replace to make your business more efficient and profitable. Don’t go to disappointing people out of unexamined habit.

5. Where do you need to persist?

Results aren’t linear. They arrive in fits and starts. Because we haven’t seen a gradual payout from some efforts, we begin doing them less and eventually stop doing them altogether. It wasn’t that the effort was misplaced: The problem was our lack of persistence.

Evaluating what to persist at is both science and art. If evidence from others who have benefited is compelling, don’t quit prematurely because you haven’t seen a pay off yet.

6. What do you need to let go?

Don’t stubbornly cling to practices, relationships and projects that have never reached critical mass. We persist in the wrong things out of habit and fear of admitting failure. For instance, if you’ve had an important ‘to do’ on your list for months (or years), it’s time to ‘let it go’.

Now is a good time to free up needed resources by letting go of the unproductive, vexing or wasteful. You’ll find the practice freeing.

7. What are the biggest threats?

Don’t you, like me, see threats well in advance and yet refuse to deal with them until it’s too late? Most of us buy our home alarm system after the break in. It’s human nature to play by the belief, ‘It won’t happen to me.’

I’m not suggesting paranoia, but if you know it will eventually rain, what are you doing today to prepare? Identify that most serious threat that could derail your business. Take steps to avoid what you can and develop a contingency plan for what you can’t.

8. What are the greatest opportunities?

Just as we can ignore threats, so can we miss the opportunities around us. We are sometimes so busy trying to create opportunities that we don’t see the ones that already exist. Where are the biggest opportunities for you and your team going forward?

Reflection is powerful when it leads to recalibration. Once you’ve identified the what, consider the why, but don’t get stuck on it. There are insights to be gained from understanding, but in an imperfect world, you won’t always determine the reasons something did or didn’t happen (or determine them correctly). The money question is “What to do now?” Recalibration is a change in attitude, behaviour and/or direction. And therein lies your great opportunity in the year ahead.

Read Next: Seven Signs of Trouble to Look Out For

B. Top tips for dealing with business disasters

Now that you’ve evaluated 2013, you’ve got a clearer picture of where you’re at. Is your business performing as well as you’d hoped? Remember, no business is ever safe from harm. Your strategy for growth might be in place, but what about dealing with unexpected crises? This guide will show you how to plan for and bounce back from an unexpected crisis — and keep your customers in the meantime.

It’s going to happen some day: A key employee is badly injured in an accident; a power outage knocks out your computers; a fire takes out your warehouse.

Unexpected emergencies can momentarily shut down operations, or even worse, put you out of business for weeks and force your customers to go elsewhere – and stay there. Are you prepared for this? It’s not as difficult as you think. Here’s how to plan for the inevitable.

Step 1: Determine what can go wrong

The first thing you should do is complete what’s commonly referred to as a vulnerability or risk assessment. This assessment will identify what could go wrong, the effect on your business if something does go wrong, and what priority you should take in minimising your risk exposure. During this assessment, you should:

Learn the threats and risks your business faces. Threats are anything that could happen to your people, processes, infrastructure or reputation, including natural threats (hurricanes and tornados), technological threats (machinery malfunctions), or human threats (stealing and strikes).

Once you’ve identified the possible threats, determine how vulnerable you are to them. How reliable is your data back-up system in the event of a power outage? Are your employees properly trained for an earthquake? What about your security system – how capable are you of preventing customer or employee theft? Determine what your most vulnerable areas are and what mitigation measures are needed to protect them.
With threats and vulnerabilities identified, start prioritising.

Rank your threats in order of frequency. Now rank your vulnerabilities to these threats by the impact they’ll have on your business; for example, inventory results show employee theft is R50 000 per year, computer failure costs R1 000 per hour, and so on. Apply those numbers to the prioritised risks, and now you have a risk exposure for each threat. The higher the risk exposure, the more it’s worth your while to protect yourself from that threat.

Step 2: Develop a plan

An emergency action plan is a written procedure manual for dealing with the threats you’ve identified in step one. Some of the components of your plan will be prescribed by law, regulations or good business sense.

When there’s a legal requirement to do something, you’re usually – but not always – told how to comply. There are a number of different ways to create your emergency plan; however, all emergency plans tend to have the same basic elements. Emergency actions plans should contain the following minimum elements documented in writing:

  • Clear, written policies that designate a chain of command, listing names and job titles of the people or departments responsible for making decisions, monitoring response actions, and recovering back-to-normal operations
  • Names of the people responsible for assessing the degree of risk to life and property, and who should be notified for various types of emergencies
  • Specific instructions for shutting down equipment and production processes and stopping business activities
  • Facility evacuation procedures, including a designated meeting site outside the facility and a process to account for all employees after an evacuation
  • Procedures for employees who are responsible for shutting down critical operations before they evacuate the facility
  • Specific training, practice schedules and equipment requirements for employees who are responsible for rescue operations, medical duties, hazardous responses, fire fighting and other responses specific to your work site
  • The preferred means of reporting fires and other emergencies.
  • Finally, ensure that you have a way of contacting your customers should you have the need. A press release, an email or a sign that directs them to a new location or provides them with information on when you’ll be back in business go far in reminding folks that your reputation is dependent on taking care of your customers.

Step 3: Be ready to respond

Once you get the basic emergency action plan written, tell your employees. Make sure they know what’s expected of them in an emergency – any kind of emergency.

If they haven’t been involved before, give them an opportunity to ‘dry run’ the plan and talk over how things might go in an emergency scenario (this is called a tabletop exercise). You might find that there are changes you need to make to some of the plan’s details. That’s good. No plan is perfect, and it’s not even a plan until it’s been tested.

Be sure to share your response protocols, especially your evacuation procedures, with the local fire department, emergency medical service and police department. These are likely to be the first type of assistance to arrive on the scene, and they’ll need to know what actions you’ve taken.

When they’ve been apprised of your emergency action plan ahead of time, they’re better prepared to help. They’re also experienced with these kinds of plans and can provide valuable insight that you may want to incorporate into your written plan.

Some other areas of training for your employees that’ll help mitigate the effects of an emergency and provide huge returns in employee satisfaction and business reputation include:

  • Emergency equipment shutdown
  • Emergency notification procedures
  • Building evacuation procedures
  • Fire extinguisher use
  • Basic first aid
  • Cardio-pulmonary respiration (CPR).
  • Training is an important and relatively inexpensive part of emergency preparation that may save a life. More important, proper training can prevent an emergency from becoming a disaster and make all the difference between closing down operations for a few hours and being out of business indefinitely.

Step 4: Get back to business

Once you’ve implemented the first three steps, take the time to think about the worst-case scenario and make some plans for how you’ll recover. Some questions to think about – and answer – include these:

  • Where will you find a new location to work?
  • Where can you get replacement equipment and computers?
  • Who will help clean up after the storm/fire/disaster?
  • How will you recover your critical data – the computers or original documents damaged by water or fire?
  • How will you reach your people?
  • How will they reach you?
  • How will they get to work?
  • What if your suppliers aren’t as prepared and something happens to them?
  • What programmes are available to help your business or help your people (Red Cross, Salvation Army)?
  • There are many more questions you could ask yourself, but I’m sure you get the idea. What will it take for you to get back into business quickly? You might be very proud of getting your operations back up in three weeks, but if your competitor does it in one, where will your customers go? How much will your reputation suffer?

Remember, there’s no way to guarantee that once you’re in business, you’ll stay in business. It’s up to you to plan ahead and be prepared by creating the most resilient business possible.

Read Next: Can Your Business Survive If You’re Gone?

C. See if you score high on the financial fitness quiz

The current economic environment creates a dilemma of sorts for entrepreneurs. Due to the economic slowdown and a lack of sales, businesses have seen their balance sheets deteriorate to the point that they’re no longer a viable credit risk.

Thus, banks have restricted their credit and lending policies, severely impacting entrepreneurial firms. What’s the solution? Entrepreneurs need to focus on the big three: Cash, sales and debt. Alongside is a simple quiz; the higher your score, the better you are financially.

Cash

1. Cash flow: How long can you pay your current monthly bills using the cash you have on hand?

  • 31 to 60 days +3
  • 7 to 30 days +1
  • Less than 7 days -3

2. Monthly cash flow divided by interest expense:

  • Greater than 2,0 +3
  • 1,01 to 1,99 +1
  • Less than 1,0 -3
  • Sales

3. Revenue growth over the past year:

  • Increased +3
  • Held on to customers +1
  • Decreased -3

4. Percentage increase in new customers (from last quarter)

  • Greater than 10% +3
  • From 1 to 10% -1
  • Lost up to 10% of customer base -3
  • Debt

5. Debt to assets ratio:

  • No debt +3
  • 01 to ,79 +1
  • Greater than ,80 -3

6. Business credit card debt:

  • No debt +3
  • R10 000 to R25 000 +1
  • Greater than R25 000 -3

Remember, the solution to surviving tough times is balancing the three-legged stool: Cash, sales and debt. Pay attention to all three and you should do okay. Add up your score below to see where you are:

  • Severe risk of failure: -11 to -18
  • High risk of failure: -3 to -10
  • Elevated risk of failure: -2 to +3
  • Guarded risk of failure: +4 to +11
  • Low risk of failure: +12 to +18

Entrepreneur Magazine is South Africa's top read business publication with the highest readership per month according to AMPS. The title has won seven major publishing excellence awards since it's launch in 2006. Entrepreneur Magazine is the "how-to" handbook for growing companies. Find us on Google+ here.

Advertisement
Comments

Risk Management

Are You Focusing Too Much On The Little Details (And Forgetting The Bigger Picture)?

To what degree do outside influences impact your business’s success? As a business owner, should you be focused on your business, or taking a macro view of the world?

Nicholas Haralambous

Published

on

business-focus

Entrepreneurs live in the daily grind of their businesses. This is unavoidable but can often be fatal. Day to day we think that the little things matter more than the very big things do. A little thing like the floor of your office or store being mopped daily can become a huge issue if not done.

Sure, these things are important because they create a culture of care and pride, but what you might be missing while you watch your team mop the floors is the macro-economic climate shifts that happen more rapidly than you think.

Step back to move forward

Early in the life of a new business the only way to survive is for the founders to do absolutely everything. From designing a logo and launching a strategy all the way through to writing tweets and emailing customers when there are issues.

This makes sense when you’re building a business, your team is small and your cash is tight. However, as you grow, it becomes important to let your people do their best and take on the day to day work.

Related: Expanding At The Speed Of Stress

As an obsessive entrepreneur it’s often hard to let go of these little details. Day to day operations will always be integral to the growth of your business and an important part of someone’s job in your organisation. However, it shouldn’t be yours if you are taking care of the big picture.

As the leader of your business you need to take a step back from the grind and look at the world around you.

To truly understand the positioning of your growing business you need to understand your country, continent and world.

You should understand the economic position you’re in as well as that of your province, country and even the markets that might directly influence your sales. Get a good understanding of the political stability of your country and the world.

Finally, you should figure out if there are any large- scale impending disasters. If disaster is imminent, like Zuma pillaging a nation and tanking an economy, then you have to get your head out of the floor mopping and into the high-level strategy of survival and preparation for disaster.

Move the needle

business-solution

Every day there are 24 hours that you can fill. You can choose to work during that time and faff with the things that were once important, or you can figure out what is going to move the needle in your business.

What is going to really help you survive and grow in the years to come? Founders, CEOs and leaders need to be thinking about the next three, five and ten years. Let your team worry about today. Let the smart people you work with make today and tomorrow and next week work.

Chances are, the things you are doing in the hours/minutes aren’t saving your business or moving the needle. It’s the things that you plan for the next six months that affect the next five years.

Related: 8 Rules To Build Wealth When You Weren’t Born Into Money

Don’t live in a bubble

It’s easy to fall into the trap of thinking that you live in an isolated country or region that isn’t affected by world events. Unfortunately, no matter how hard you close your eyes and hide your head under the pillow you can’t avoid the fact that your business exists in a globally connected environment.

At Nic Harry we were affected by the Brexit events that unfolded in the UK and Europe. British shoppers were scared and didn’t spend their money when they were on holiday in Cape Town over the peak holiday season. I was so busy preparing for the seasonal uptick that I missed the link between a huge global event and my sales.

You live in a world that is filled with online shoppers and tourists who visit your business whether you know it or not. Prepare for the world to start having an effect on your business more and more.

Broaden your view

I am always fascinated by the narrow view of the world many entrepreneurs display. I may sell men’s socks, accessories and style but that doesn’t mean that the mining sector doesn’t affect my business.

Related: How To Plan, Prioritise And Get It Done Now

Even if you were an entrepreneur building a business in Antarctica I would urge you to read about oil prices, political world events and the intricacies of overfishing in the South American seas. Being well rounded and having a broad view of the world and your business can only make you a more robust thinker who sees more angles to exploit, protect against and thrive on.

Continue Reading

Risk Management

Why Adversity Is Actually The Best Thing For Your Business

There’s been a lot of talk about privilege lately: What is it? Who has it? Who doesn’t have it? I have a slightly different take on privilege and prefer to frame it as the privilege of adversity.

Allon Raiz

Published

on

overcoming-adversity

Studies across the globe show that the minorities in all contexts have higher rates of entrepreneurial activity than the incumbent majority. There are a host of reasons for this, but one of them is that adversity creates resilience and self-reliance that are vital for entrepreneurial success.

Every successful and exponentially successful entrepreneur that I have met or read about has transitioned through a baptism of fire. They have overcome insurmountable obstacles and used the lessons gifted through their experiences to rocket their business to the next level.

Related: Approach Adversity Head-On

The Five Gifts Of Adversity

A sense of where your true limits are. These are always far beyond what your belief system believed them to be. The experience of testing your limits breaks the preconceived notion of where your limits are or were.

Confidence. Once you have overcome an issue, the experience of overcoming it builds a high level of confidence that should the issue reoccur, you will have the ability and resources to overcome it. For example, if you lose your biggest client and manage to keep your business afloat, the next time you lose a big client you will not panic or become despondent, but will instead kick into action and claw your way out again.

Insight. Insight as to which of your non-financial resources you can tap into. When the chips are down and money is nowhere to be found, it’s amazing how many resources you will now perceive around you that can potentially help you transition to success. These resources come in the form of advice from friends, access to new markets through networks, credit from suppliers, and free promotion through networks, to name a few.

Your relationship with your own resourcefulness. The experience of not having resources but somehow manufacturing some out of thin air, recalibrates your sense of your own resourcefulness, which in turn builds a level of confidence that should you be dropped off in the middle of the desert with only a matchbox and a magnifying glass, you will survive.

Related: Learn to Adapt In The Face of Adversity

Faith. A level of faith and a belief system that there is always a way to overcome a problem. This is true no matter how overwhelming the problem may be. The more you overcome impossible problems, the less you’ll believe in the existence of impossible problems.

So instead of worrying about who has privilege, who doesn’t, or what privilege actually is, use the lessons gifted to you when overcoming insurmountable obstacles to propel your business forward.

Continue Reading

Risk Management

The Principles Of Cession: A Powerful Business Tool

Relinquish your rights with these quick and easy tips.

Nicolene Schoeman-Louw

Published

on

business-cession

In terms of South African law, the legal concept of cession was defined in Johnson v Incorporated General Insurance Ltd 1983 (1) SA 318 (A) and in FNB vLynn1996 (2) SA 339 (A), as:

“…an act of transfer to enable the transfer of the right to claim to take place.F Accomplished by means of an agreement of transfer entered into between the cedent and the cessionary and arising out of a justa causa, from which the intention of the cedent to transfer the right to claim appears or can be inferred and from which the intention of the cessionary to become the holder of the right appears or can be inferred.”

In simple terms, according to the online Oxford Dictionary, cession is ‘the formal giving up of rights, property, or territory by a state’. According to the online Free Dictionary, it is ‘the act of relinquishing one’s right’.

Related: BBBEE Employee Share Schemes – Should I Or Not?

This means that cession is clearly distinguishable from contracts because it does not create obligations and is also distinguished from delegation and subrogation, which do not involve the actual transfer of rights.

Valuable tool for business

Cession is a valuable business tool because it allows businesses to cede assets that can be ceded by transferring them − completely or not − when there is no cash available to secure a transaction or assure performance. However, it is essential that the parties involved understand and express their needs rather than blindly signing documents that do not enshrine their true intentions.

Legal requirements for a valid cession

According to van der Merwe et al 2002, the following requirements must be met to affect valid cession:

  1. A right inhering to the cedent
  2. Agreement between the cedent and the cessionary to give and accept transfer of the right
  3. Compliance with any formalities set by the law.

1.1. A right inhering to the cedent

Existing rights versus a spes

According to FNB v Lynn 1996 (2) SA 339 A, our courts have to date followed the approach that only existing rights may be ceded, and not rights which amount to nothing more than an expectation or spes. The determining factor in this approach is whether or not the right falls within the cedent’s estate at the time of the cession.

However, according to Muller v Trust Bank 1981 (2) SA 117 N, there is another theory that deviates completely from this approach and deserves a mention. In terms of the doctrine of cession in anticipando, cession of a spes may happen provided the cedent and cessionary conclude both a contract (obligatory agreement) as well as a transfer agreement to affect cession. Upon the materialisation of the right, when the right actually comes into existence, cession may take place.

There is no formal objection to this approach and our courts have not indicated that they are completely adverse to it. Nevertheless, there is no precedent to date that guarantees cession can be enforced based on this common law doctrine.

Personal right

Accordingly, any personal right may be ceded provided it already falls within the cedent’s estate and is capable, in law, of being ceded. Therefore, this even applies to rights that have not yet come into force or effect − such as vested rights (for example: the rights of the beneficiaries of a family trust before its dissolution); contingent rights (rights which are subject to a condition); and/or the right to receive your pension pay out upon reaching the age of 65 years.

Related: The Correlation Between Cash Flow Challenges And Risk

1.2 Justa causa (or intent)

A causa, or reason, for the cession taking place essentially determines the nature and extent to which the right is transferred between the cedent and the cessionary.

In the case of out and out cession, or normal cession, the right is usually transferred to the cessionary while the cedent has a reversionary right to cancel the cession and (re)claim the right, should it become necessary.

Whether or not total transfer of rights takes place in the case of security cession, or cession in securitatem debiti, has been widely debated for some time now. But, legal uncertainty prevails to a certain extent. The question remains as to whether security cession is only a ‘sue do’ or ‘theoretical cession’, where the cession is treated like a pledge of the right. In this case, no actual transfer of the right takes place.

The only logical explanation for this theory is that the cedent retains ownership but only relinquishes his ability to exercise or enforce his rights. Although the courts have, in fact, confirmed this construction may be theoretically unsound, some continue to apply this model based on the notion of an established legal precedent that has been applied for over 70 years. This was confirmed again in Grobler v Ootshuizen 2009 ZASCA 51, where the Supreme Court of Appeal held that security cession is nothing more than a pledge.

There is an opposing argument that this type of cession, regardless of the difference in causa, is treated as an out and out cession and transfer of rights. This theory is further supported by the case of Picardi Hotels v Thkweni Property 2008 ZASC 128, where the court held that a cedent who has not exercised his reversionary rights lacks locus standi in the enforcement or exercise of the right so ceded.

2. The agreement

Although an agreement for cession need not be in writing, a written agreement is always preferable. The only requirement set according to Botha v Fick 1995 (2) SA 720 (A) is that ‘mere consensus is sufficient to effect a cession’.

In addition, the cession must also be lawful and the rights of debtors should not be prejudiced. This does not imply that the debtor must be notified or that the debtor will become a party to the cession.

Formalities

In most cases, there is no need to comply with any formalities to affect cession. In some instances, however, certain formalities are prescribed by law. In the case of a mortgage bond, for example: it must be registered at the Deeds Office.

Conclusion

Cession is a valuable tool in business. That said, it is of utmost importance that the cedent and cessionary both understand the legal nature and consequences of their transaction, or cession, before entering into an agreement.

What’s Next? How to Protect the Future of Your Business.

Continue Reading

Trending