The modern world is awash with different threats that can potentially harm your business. It’s a cruel world. And economic conditions can turn on a dime. That’s why it’s so important to know what the risks coming down the pipeline are and what to do about them. The risks that companies face change all the time. But underneath all those fluctuations, it’s the same risks that return time and time again.
Let’s take a look at some of the risks that you’re most likely to face as a business.
Exchange Rate Threats
International companies ship goods all over the world. And as a result, they spend a lot of time converting one currency into another. After all, their profits are denominated in one currency. But their customers might be buying their products in quite another. And this is where things usually get a little tricky. The problem is that exchange rates tend to be quite volatile. Just look at what’s happened to the pound after the British EU referendum. It’s been all over the place as financiers try to settle on a price.
But exchange rate volatility has been something that has dogged businesses for years. It’s nothing new, and it will continue for the foreseeable future. The problem, however, is when there is a mismatch of prices caused by sudden changes in the exchange rate. If a key overseas market were to weaken suddenly, the exchange rate might fall. And if the exchange rate fell, people in that market would be less able to buy your product.
There is, of course, a solution to this: expand into multiple overseas markets. By doing this, you spread the risk to which your company is exposed. And you ensure that you keep healthy revenue streams during turbulent times. Of course, this sort of thing is easier said than done. But if you can include expanding into many markets in your business strategy, your company will be more robust.
Interest Rate Threats
Sometimes it feels as if we’re living on borrowed time in the West. Our interest rates have been at rock-bottom for well over seven years now. And it seems as if the era of low-interest rates has to come to an end soon. But will it? Well, there’s a chance it will if credit becomes scarce once more. And it’s the rise in interest rates that should have a lot of businesses worried. The problem is that corporate debt is near record levels. Any increase in the interest rate will make it difficult for corporations to pay off their debts. And if they can’t pay off their debts, they’ll go bust.
There’s no guarantee that interest rates are about to rise. But it seems inevitable that they will at some point in the future. If inflation picks up, which it might, interest rates will have to rise for people to want to save.
Protecting your business against interest rate hikes is not easy. But it is possible if you take the necessary precautions. One precaution is to reduce the amount of new debt your business takes on. Don’t take on new debt if you can’t afford to pay it back if interest rates go up 200 basis points. Also, avoid taking on new debt for any projects that are frivolous. Does your business really need to go into debt to pay for everybody to go on a week-long spa holiday? It might seem like a nice idea to get everybody relaxed, but it’s probably not worth it in the long term.
Raw Material Prices Threats
Not all, but many small businesses face raw material prices threats. The cost of raw materials, like exchange rates, varies considerably. And when the price of raw materials spikes, many businesses can find themselves suffering. Companies who tend to lock in their prices early tend to suffer more. There’s often no way to pass on the increased costs to the clients.
So what to do? One solution is to make sure that the price of the work done can vary if the price of materials varies. This isn’t the same as being able to change the price half way through the project. All it says to the customer is that if there is a price rise in the cost of raw materials, the price of the product will have to go up as well.
The other solution is to make connections with many different suppliers. If the price of raw materials from one supplier goes up, then it’s easier to switch over to a new supplier.
From time to time, companies are audited by regulators. Usually, it’s to make sure that they are compliant with the tax and with the law. But here’s where things can get tricky. Auditing rarely passes without an event. And auditors usually can find something that they aren’t happy with. Unfortunately, when they do, it can often land businesses with fines or even worse.
That’s why it’s not worth taking any chances with your audit trail. Risk management software is perfect for companies that want to keep track of all the data relevant to their business. Once they’ve got access to all their organization’s data, it’s easier to be compliant. Risk management software helps businesses by providing an audit trail and improving IT security.
Skills Shortage Risk
Many businesses today are suffering from a lack of skills. The problem is particularly bad in firms that are trying to recruit people with hands-on experience. Often they are difficult, if not impossible, to find. A lack of skills is what is preventing a large number of businesses from expanding. And this is, in turn, hurting their bottom line.
Managing skills shortages is difficult because it is often something that affects an entire industry. But there are things that firms can do. One option is to offer a slightly higher wage than your competitors. This will attract talent to your company if the talent is out there. The other option is to do the training yourself. But this will require time and money and may not be effective if employees leave.