Types of Risks Your Business Should Prepare For

For many businesses, confronting unexpected threats is a test of survival. Research shows that above the typical level of closures, an extra 200,000 businesses permanently shut their doors (PDF) due to COVID-19.

Although the pandemic may have seemed like a once-in-a-lifetime event, the World Economic Forum expects that business uncertainty will remain high in the near future as companies continue to grapple with many types of business risks.

Common business risks

The best way to prepare to weather the dangers is to understand common business risks and build a strategy to manage them. To get started, here's an overview of several common risks businesses can face and some concrete steps to be prepared for them.

Cyberattacks

Businesses have lost money to extortion, had intellectual property stolen or found customer data compromised in high-profile cybersecurity attacks. To guard against cybercrimes, consider hiring cybersecurity professionals to continually upgrade security measures, patch weaknesses and help provide cybersecurity awareness training for employees. Another option is to consider employing independent ethical hackers to spot vulnerabilities before criminals find them.

Pandemics

The COVID-19 pandemic made it clear that infectious diseases can wreak havoc on the economy. Companies can get ready for future outbreaks by drafting pandemic preparedness plans, making sure they have the technology in place to conduct business remotely when needed and establishing a clear order of succession in case managers fall ill or need to quarantine.

Natural disasters

Extreme weather events, earthquakes and other environmental crises can shut down businesses in affected areas. Companies can prepare by training their workforces in disaster risks, conducting drills and creating backup plans in case certain locations go offline. Companies may also want to think critically about their own impacts on the natural world to make sure none of their actions destabilize the environment.

Embezzlement

Theft by employees diminishes a company's resources and can hurt its public image. Businesses can deter embezzlement by setting up a system of checks and balances so employees' actions are scrutinized and no one has exclusive access to company accounts. In addition, companies should hold regular audits by outside firms.

Lawsuits

Defending against a lawsuit can use up a company's funds, and it may lose a significant amount of money if the court sides with the plaintiffs or settles the suit. Lawsuits can also erode customers' and vendors' trust in a company.

To manage this risk, companies should hire attorneys to review their actions for legal compliance. Businesses need to have robust processes in place to test product safety, and they should adopt whistleblower policies to protect employees who report violations.

Supply chain disruptions

Companies may find themselves suddenly unable to buy essential materials if a longtime supplier faces a crisis. They may benefit from building working relationships with multiple suppliers in different regions so they aren't overly reliant on one source. And executives may be smart not to adhere too closely to a just-in-time management model that could leave their company in the lurch if supplies aren't available right away.

PR crises

A company that's the target of a social media campaign or the subject of critical news coverage will likely lose customers and may find other businesses less willing to enter into partnerships. Companies can mitigate this risk by being selective about who is allowed to speak for the organization. For example, an intern shouldn't have unsupervised use of the official LinkedIn account.

Companies may want to maintain open communication with journalists, so they can share their side of the story with the media when problems arise. And it's best to cultivate an inclusive, ethical workplace culture so employees will be less likely to have grievances that go viral.

Regulatory changes

Changes in law or policy can force businesses to revamp their operations overnight. Small business owners can avoid being blindsided by tracking policy developments by evaluating their procedures. It's important to ensure they aren't skirting any legal gray zones or taking advantage of loopholes that lawmakers might eliminate.

Technological advances

Technological progress can put a company out of business if its flagship product becomes obsolete. To guard against this risk, companies can invest in research and encourage employees to develop innovations. Companies may also want to evaluate how their organizations handle internal challenges and disagreements to make sure new ideas have a chance to be heard.

The bottom line

Investing in preparedness today can help keep business running even when potential risks occur in the future. Despite the inherent risks, companies can protect their businesses by establishing the right strategies and adapt in the ever-evolving economy.