• Business Planning
  • June 16, 2021

Types of Risks for SMEs to Avoid

Every business, including SMEs, carry a series of risks. They could relate to market changes, liquidity, security, staff-related, legal issues, and so on. It's impossible to eliminate all risks in life or business.

 

 

But as a SME you can reduce or minimize risks to ensure continued success when new opportunities and obstacles present themselves? 

 

 

 

 


Here are  'Types of Risks for SMEs to Avoid'

 

 

 

1.    Cash Flow 

 

Without liquidity or cash flow, it's difficult to keep the lights on, pay employees, and invest in growth. Calculate every month how much money you have and how long it will last if income dries up. Also, evaluate total accounts payable and number of days the accounts are outstanding because a slowdown in payable will lead to cash-flow crunch. 

 

 

 

 

2. Business Insurance

 

Cover operational risks with an insurance policy. Many times, businesses never reopen after they suffered damages or business discontinuity. The areas could include factory, warehouse, equipment, stock, theft, vehicles, the health of employees, natural factors and so on. Sometimes, taking a broad one-size-fits-all general insurance, is not ideal. 

 

 

For example, in the UAE, an SME can insure against drones; professional indemnity for any service; digital theft; fog and floods (if you run a fleet); for events cancelled due to weather (if you are travel agency or event manager); public liability insurance in the event a third-party is injured, or their property is damaged as a result of your activities or on your premises. If you have sales managers on the move, then travel insurance can help. It could also be the death or disability of key employee, Owner or Manager - the risk can be mitigated with keyman insurance. 
 

 

 

 

3. Long-Term Commitments

 

Until your SME is established, avoid long-term commitments such as mortgages and car lease payments. Even hiring can be long-term as employment contracts can last for up to 2-3 years. Instead open a 'pop-up store' or kiosk instead of investing in a property; or hiring staff on a project basis or 'pay as you go' plans for utilities, IT, car services, storage, delivery and so on. 

 

 

 

 

4. Reputation Management

 

A negative comment, poor review of product/service, wrong tweet, rumors, leakage of sensitive data by a disgruntled employee or unethical competitor would break your business, due to social media. As a business owner, monitor online conversations about your brand. You can set up free Google Alerts that tracks any mention of your company, keywords, competitors or and respond proactively. 

 

 

 

5. Regulatory Compliance

 

There are local, regional and global regulations and compliance issues that need to be sorted. Some apply for all companies, but few are depending on the industry and countries in which your business operates. They could range from health and safety, privacy, labour laws, data security or taxation. Make your business compliant and not attract fines or penalties. If unsure, appoint a trade lawyer on a project basis to review all contracts with staff, suppliers for potential legal risk in all the jurisdictions you operate in.

 

 

 

6. IT Security

 

According to a survey conducted by Dubai SME and Zurich Insurance, cybercrime was one of the fastest growing risks. If you store customers' data, do online transactions, you have the risk of phishing, hackers, malware your customers (and vice versa) may be prone to. And with the new European Union's GDPR laws, if you have EU customer, then you have legal obligations to protect data and report breaches to regulators. Hire a 'white hat' (ethical hacker) or IT security consultant to test your website, network, mobile usage and install security software and policies.  

 

 

 

7. Intellectual Property

 

In today's knowledge economy, intellectual property (IP) rights are key. It could be your brand, logo, process, trademark or source code. In many cases, SMEs do not exploit their innovative and creative work as they are unaware on how to identify, license, enforce and monetise IP. The Dubai Copyright Office (www.Dubaicopyright.ae) helps you protect your IP in 167 countries within 10 days.


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