Deciding to run a business, especially in a developing nation like Nigeria, is a risk in itself. This is as a result of the numerous challenges business owners face daily from coping with regulatory uncertainties to economic instability, currency fluctuations, market disruptions, amongst others.
As a small business owner already on the entrepreneurial journey; making plans, promoting your products and services and managing people should not be your only priority. You should acquaint yourself with the various types of risks that can affect your business, and ensure to implement relevant strategies needed to mitigate them.
According to a KPMG Survey of business risks for 2020/2021 in April 2020, the top 10 business risks based on the responses received are regulatory risk, fiscal and monetary policy risk, foreign exchange volatility risk, cyber-security risk, political risk, technology infrastructure risk, customer attrition risk, talent short/attrition risk, business continuity risk and governance risk. In this piece, we will discuss some of these risks as well as others that relate specifically to small business owners.
This is the effect that changes in rules and regulations can have on a business. Often, regulatory changes can lead to an increase in operational cost, changes in the competitive landscape or reduction in the attractiveness of a sector to investors. For instance, the logistics sector which has been on the regulatory radar, as we have witnessed restrictions on bikes and an increase in licensing fees for operators. Other regulations that MSMEs have had to comprehend in 2020 was the Finance Act 2020 which took effect from February 01, 2020, as well as the recent CAMA Bill 2020 which was signed into law on August 07, 2020.
Regulation is now a major concern for businesses in Nigeria, as various agencies of government continue to put measures in place to ensure a fair play for market operators and protection for customers. To mitigate this risk, entrepreneurs need to have a checklist of all regulatory compliance requirement related to their business; then develop strategies to engage regulators and carry out regular scenario planning exercises to determine the likely impact of changes that could occur. One of the ways some businesses can keep abreast of regulatory actions is by being members of key associations such as Chambers of Commerce and business communities that help to facilitate regulatory conversations.
A major concern for most small businesses has always been cash flow. This is why access to finance remains a challenge faced within the industry. The risk of being unable to meet various financial obligations, losing the capital invested or the inability to get the required funds needed to take advantage of opportunities within the market are the monetary uncertainties business owners usually have to contend with. Amidst this are the shocks from fiscal and monetary policies which impacts access to credit as well as the fluctuations in foreign exchange rate because of its effect on import and exports.
As a small business owner, the first step to mitigate your financial risk is to separate your personal finances from that of your business. With this, you can have proper records regarding your revenue and expenses, and put in place controls to reduce your cost and strategies to increase revenue. If you have multiple streams of income, your financial statements would enable you to assess the highest and lowest streams of income which would help determine how to concentrate your marketing efforts. Similarly, you can ascertain your peak periods and periods of shortfalls to make more informed decisions regarding how to manage your funds. Essentially, you need to understand your cash flow cycle; ensure a strategic diversification of your revenue streams; have a budget and adhere to it, and develop a culture of saving and investing. You should also familiarize yourself with future investment plans asides debt you can explore, to keep your business afloat.
Technology has been a major driver of innovations experienced in most sectors because of its ability to enhance business processes and increase productivity. The COVID-19 pandemic accelerated the need for most small businesses to adopt digital solutions to sustain their businesses; as everyone moved online to shop and increased interaction via digital channels due to the lockdowns.
While it is important to leverage on technology, it is also necessary to bear in mind the possibility of experiencing business disruptions due to technological failures. Thus, the most important means to prevent and reduce the effect of technology disruptions is to have a business recovery plan and policy which would include all that is necessary in relation to having in place back-ups, use of antiviruses and secure networks (website, emails, computers, servers, etc) as well as staff training on the various policies and procedures to ensure compliance. You should also consider the insurance of your hardware(s) against loss, damage, theft or fire. Adoption of the Nigeria Data Protection Regulation (NDPR) and investment in internal and external technological capacity is also critical.
Human Resource Risk
Small business owners are often saddled with the responsibility of managing their HR function themselves due to limited capacity for a designated department. As a result, managing the process of recruiting to onboarding and retention can be quite challenging; thus, posing a risk of high staff turnover which can adversely affect the operations of the organization. In addition, inadequate financial resources needed to sustain skilled employees and train less skilled employees recruited can affect staff retention, affect productivity and hamper the sustainability of the business.
To lessen this risk, business owners need to have a framework in place to enhance employee experience and equip them with the requisite learning and development solutions to ensure career growth.
Customer Attrition Risk
These are risks associated with the loss of key customers as a result of the inability to meet their expectations. As technology continues to impact the way we consume, business owners need to be abreast of behavioural changes in order to quickly innovate to meet customers’ expectations. To mitigate this risk, business owners should leverage technologies that can help collate and analyse customer data. They should also be open to receiving feedback from their customers to ascertain changes to be made in their business operations to ensure customer retention.
In all, no matter how small your business is, efforts should be made to identify the risk that can affect your business. Strategies to mitigate same should also be documented and implemented to ensure the sustainability