Business Advisory Blog Business management information from Robert Griffin.

September 15, 2011

Managing Risk – Get started

My last writing on this was the beginning of summer. At that point I stated that would be a good time to take a step back from the business and give some thought to where your business might be headed and asked if you had thought about what was ahead and if you were prepared for it. I also explained the need to assemble a team of managers and owners to do a  SWOT analysis of all aspects of the company.

Now that summer is coming to a close, fall is here and everyone is back from vacation this is a good time to get started. So where do we start, just take at look at the swings in the market every day and all the various predictions as to where the economy is headed, most of which are not good. Have you looked at how the various changes predicted for the economy might impact your business? What about the still shaky financial markets, is there a potential pitfall there to disrupt your business?

So how do we do a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis on the economy or the financial markets? By looking at how the various area of each of those could impact your company. To do that think about the following questions:

Where are your markets, do you sell in to Greece, Italy, Spain, Ireland, etc.? These are economies that are in trouble and therefore your business in those economies is
at risk. To take that thought one step further, do you supply product to any of your customers who are not in those countries but who sell into those economies? If you do then your business is at risk and therefore that is a weakness or a threat to the success of your business. On the other hand, if you do not, then it is a strength.

On the other side of that coin, do you buy raw materials or services from companies in those countries? If so then that supply chain is at risk. Economies and governments that are in financial trouble cause problems for businesses that import and export to those countries do to impacts on available financing, import an export restrictions, etc. So if this is the case you have a weakness that could significantly disrupt your business.

To bring this, what I call, external impacts analysis, closer to home, lets talk about your banking arrangement. I know, I know you’ve been dealing with the same bank for years, you’ve never missed a payment, you’ve had the same loan officer for a decade, you’ve always met your covenants, etc., etc.. I understand, and you’re not alone,  I’ve seen lots of those  situations. But I have also seen many times, in that same scenario, the following. You get a call from your long term loan officer and now friend and he wants to stop by and see you. You say sure, of course, and when he comes in he informs you that the board voted to change the banks credit profile based on the current banking environment and the uncertain economic conditions. Based on that change you no longer fit the profile of businesses they lend to. So they want you to pay your loan down by 50% within 90 days and they will then give you six months to find a new lender for the remainder. Can you meet that requirement? I would assume not otherwise you wouldn’t have borrowed the money n the first place. What would you do?

I could go on and on but my point is you need to start by looking at all of the things external to the company that could impact your business and if it did how would you recover. In some cases you will find the risk minimal and decide to live with it. In other cases where the risk is higher and the probability of occurrence is greater you should develop a contingency plan. But if the risk is significant and the probability is high you should find an alternative and implement it as soon as possible because the impact would be to great for the business to absorb.

The common thread with these three items, customers, suppliers and banks, is they are all external to your company and in the past not very many business managers looked at the economies of where there customers or suppliers where or thought about their bank much once they had one. That is not the case today, you must consider all of these things and  more on an ongoing basis.

Robert Griffin
http://www.griffinadvisoryservices.com

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