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6 fundamental risks every business owner must not take for granted

Being aware of the risks and proactively planning on how to manage them can be quite helpful.  

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Running or managing a business irrespective of the size, requires that the owners or managers are fully aware of the fundamental risks they may face in their daily operations.  

Risk is the possibility of something bad happening to your business and making it impossible for you to realize your business objectives 

Some risks may be known while others may not be known. For example, the risks and losses associated with the COVID-19 lockdown and the recent #EndSARS protests.

In all things, it is vital that the business owner articulates the type of risks he is to contend with and find appropriate ways of managing them – ignoring them as if they do not exist could jeopardize the continued existence of the business enterprise, in line with the popular parlance that “ignorance is not excuse”. 

In fact, nobody can eliminate the business risks, but being aware of them all and proactively planning on how to manage them can be quite helpful.  

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Any business owner that wants to reap the dividends of their investment in the business must consider the following risks and plan how the risks are to be sufficiently mitigated.

Operational risk

Operational risk is the prospects of loss resulting from inadequate or failed procedures, systems, or policies like employee errors, inadequate processes and procedures, system failures, fraud or other criminal activities by staff or any unfavorable events that could unduly expose the business to losses. 

One unexpected event is just enough to crumble the business. It could come in form of natural disaster, riots/protests, technical issues, burglary, or fire that could destroy the physical structure of the business or cost huge losses to the business. 

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Whether it’s a people or process failure, the operational risks can adversely impact the business in terms of money, time, and reputation. 

Each of these potential operational risks can be managed in different ways.

  • It could be by way of training of staff
  • Putting in place adequate processes and standards of operations (SOPs) that would not create opportunities for fraudulent or criminal activities by staff.
  • Establishing backup systems to ensure operations aren’t affected in the case of unforeseen events occurring.

Competition risk

Every business owner should know there are competitors offering the same products and services to the public.

It is instructive that they always think ahead of the competition and should not be comfortable with past successes recorded, in order not to be upstaged.

The business owner should ensure that he is reinventing, retooling, and rejigging his products and services to win more stakes in the business sector.

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A sure way to fail in business and lose the existing customers is when a businessman in the midst of the stiff competition in his industry is unwilling to review business strategies.

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A successful business owner should always put his eyes on his competitors by regularly conducting SWOT (Strength, Weakness, Opportunities, and Threat) analysis on its business, as well as, monitoring the activities of his competitors via online and social media channels.  

Economic risk

Every business owner must be mindful of what is happening in the larger economy where his business operates. This is imperative because the economy keeps changing and the business must keep changing its strategies in tandem with the economic directions and realities.  

To this end, the business owner must always understand the direction of the economy by being on top of different macro economic policies of the government, national budget, as well as, various economic indicators made available from time to time. 

It is important that the business maintains a robust and stable cash flow via savings and operating a lean budget with low overhead as a conscious financial management strategy. 

Financial risk

The business owner must review at regular intervals, all the credits extended to his customers, as well as his company’s debt load.  

In a regime of interest rate fluctuations, it could present a serious challenge to the business if the direction is northward, as the business needs to have a good cash flow to manage the exposure, especially if it has huge debt loads with the financial institutions.  

Therefore, it is important to make necessary adjustments in his financial plan to avoid limiting his cash flows or creating unexpected losses. 

Planning to keep his debts as low as possible in sync with his business cash flow would help to prevent unnecessary pressures on the business’ finances.  

Increasing and broadening the income streams of the business would also be a proactive measure of remaining financially stable in hard times, as a loss of cash flow from one or two business segments could be compensated for by robust inflows from other business lines.  

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Compliance risk

Every business has several laws and regulations that it should always strive to comply with or face the wrath of the government. Some of the laws have to do with the business, staff or the environment.

Non-compliance with these laws and regulations always result in paying significant fines and penalties to the government, which may even affect the reputation of the company, if not properly managed.  

It is therefore important that the business owner remains vigilant in tracking all the compliance issues related to his business, as well as, regularly reviewing government agency information and seeking necessary assistance from consultants and experts in statutory regulations and compliance. 

Reputation risk

This is the risk of negative publicity, public perception, or uncontrollable events that could have an adverse impact on a company’s reputation and possibly affect its revenue. 

Reputation risk sometimes occurs as a result of the crystallization of other risk events, which is referred to as the interaction of risk.

If a business fails to comply with the subsisting rules and regulations relating to its industry, this could lead to publishing its name on the ‘offenders list’, in addition to payment of penalties and fines to the government.

When the stakeholders – partners, customers, staff, business associates, bankers, etc. read or hear about such, they are very likely to perceive the business in a negative light and could lead to the loss of such vital relationships. 

Unfortunately, the social media channels have amplified the speed and scope of reputation risk, as just one negative tweet or bad review can swiftly diminish the brand’s equity or ratings and cause the  the revenue to plummet. 

A single negative publicity about a business travels so fast and could completely wipe off all the goodwill built over the years.

To manage this risk, the business owner should make a conscious effort to regularly monitor what others are saying about him and his business via online and offline channels, and be ready to professionally engage the comments and promptly address any concerns via using the services of notable media firms or persons 

Summarily, it is better to avoid any event that could tamper or infringe on the image of the business by making sure that all relevant regulations and laws are obeyed, and that service failures by way of poor products offerings or service deliveries are completely avoided or thoroughly explained.  

2 Comments

2 Comments

  1. Anonymous

    November 11, 2020 at 4:10 pm

    Good lecture

  2. Arun Palat Kalathil

    November 12, 2020 at 12:10 am

    My name is Arun and I am passionate about risk and risk management. I would love to interact with the author of this article with a view to invite him to address the senior management of my organization based in Lagos to sensitize them to risk management.

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Energy

Transmission company of Nigeria gives reason for nationwide blackout

Following the current nationwide blackout, TCN has stated that it has started the process of restoration to the national grid.

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The Transmission Company of Nigeria (TCN) has on Sunday announced that the current power blackout in the country was due to multiple trippings.

According to a report by Vanguard, General Manager, Public Affairs, TCN, Ndidi Mbah, who made the announcement through a statement said the company had started the process of restoration to the national grid.

Mbah pointed out that the places that power is yet to be restored were Calabar, Makurdi, Jos, Gombe, Yola, Ugwuaji and Maiduguri axis.

She stated, “The Transmission Company of Nigeria (TCN) regrets to inform electricity consumers nationwide that at 11:25 am today, the nation’s electricity grid experienced multiple trippings, which led to the collapse of the system.’’

“TCN has since commenced grid restoration; power has been successfully restored to every part of the country, except Calabar, Ugwuaji, Markurdi, Jos, Gombe, Yola, and Maiduguri axes. The effort is however ongoing to ensure full restoration nationwide.”

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“We regret the inconvenience this has caused electricity consumers. Investigations would be conducted to establish the immediate and remote cause(s) of the multiple trippings as soon as the grid is fully restored, considering that the grid had been relatively stable in the last couple of months.”

What  you should know

At around 11:25 pm on Sunday, November 29, electricity supply to most parts of the country was disrupted as the national electricity grid experienced multiple trippings.

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Energy

FG to start the installation of 5 million solar power across the country next week

FG will next week commence the process of installation of 5 million solar-home systems in under-served and off-grid communities across the country.

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Solar, FG to slash import duties on tractors, buses, others in 2020 Finance Bill, Nigeria will not issue Eurobonds, says Vice President Yemi Osinbajo, FG guarantees mortgage loan to low income buyers at low interest rate, FG inaugurates gold refinery project in a landmark event

The Federal Government has announced that it will commence the process of the installation of 5 million solar-home systems in under-served and off-grid communities across the country from next week.

This move is in continuation of coordinated implementation of the Economic Sustainability Plan (ESP) which is being coordinated by a committee headed by Vice President Yemi Osinbajo, across the country.

READ: FG says 174,574 successfully register for N75 billion MSME survival fund in 48 hours

This disclosure is contained in a series of tweet posts by the Presidency on Sunday, November 28, 2020, through their official Twitter handle.

It stated that the programme will include the assembly and manufacturing of components of off-grid solutions to facilitate the growth of the local manufacturing industry, while there will be incentives for use of local content. The first set of installation will be done nationwide in December 2020.

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READ: FG disburses MSMEs Survival Fund in Lagos, Kano, FCT and 9 other states

The tweet post from the Presidency stated, ‘’In continuation of a coordinated implementation of the Economic Sustainability Plan (ESP) across the country, the Buhari administration will next week commence the process of installation of 5 million solar-home systems in under-served and off-grid communities across the country.’’

According to the statement, the Central Bank of Nigeria will make available funds to the private companies in the solar power sector involved in the manufacture, assembling installation, servicing of the solar systems, at rates ranging between 5 to 10%.

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READ: FG guarantees mortgage loan to low income buyers at low interest rate

It also states that apart from providing access to affordable energy, the objective of the plan is to improve social, economic and environmental welfare of 25 million Nigerians while generating jobs, increasing revenues and import substitution.

READ: FG goes after AMCON’s N5trillion debtors, sets up task force on funds recovery

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What you should know

The NESP, which was approved by the Federal Executive Council on June 24, 2020 and developed by the Economic Sustainability Committee, chaired by Vice President Yemi Osibanjo, is to develop a plan that responds robustly and appropriately to the challenges posed by the Covid-19 pandemic amongst other terms of reference.

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A major part of the plan is the installation of solar home systems that targets 5 million households, serving about 25 million individual Nigerians who are currently not connected to the National Grid. The solar manufacturers will be required to set up production facilities in Nigeria and provide the materials required.

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READ: Covid-19: Nigerian government explains how it will fund proposed N2.3 trillion stimulus

 

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Energy

AutoGas: President Buhari to launch scheme on December 1

President Buhari will launch a National AutoGas Scheme on the 1st of December.

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AutoGas, #EndSARS: Presidency to ensure that a repeat of protests does not happen, How Federal Government plans to increase VAT to 7.2% affects you

President Muhammadu Buhari will launch a National AutoGas Scheme on the 1st of December, as Nigeria makes alternative moves to maximize its rich natural gas reserves as a means of fuel consumption.

This was disclosed by Dr Mohammed Ibrahim,  Chairman, National Gas Expansion Programme (NGEP), in a statement after a meeting with stakeholders on Saturday in Lagos.

READ: FG approves new board for NLNG, BGT

Dr. Ibrahim told stakeholders on Saturday that the autogas scheme and deepening domestic utilisation of Liquefied Petroleum Gas (LPG) would create about 12.5 million direct and indirect jobs for Nigerians.

He also added that the Presidential fleet has already converted some of it fuel engines to run on  Compressed Natural Gas (CNG) and Liquefied Natural Gas (LNG), adding that the adoption of AutoGas was necessitated by the deregulation of petrol by the government, which had led to increment in the pump prices in recent times.

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”We need about 500, 000 conversion engineers in the next 90 days to ensure that the retrofitting of the vehicles go as planned.

“Fifty conversion centres are currently upgrading for mass conversion and trainings and over 30,000 vehicles are already running on dual fuels in Nigeria.”

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READ: Nigeria to import petroleum products from Niger Republic, sign MoU on transportation, storage

“The 90 days training is being undertaken by the Nigerian Content Development Monitoring Board and the Petroleum Trust and Development Fund.

” These entrepreneurs will get their own foundries for manufacturing and will thereafter train others as time goes on,” he said.

READ: Largest private investment in Africa begins $15 billion financing

What you should know 

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Nairametrics reported in September that the Minister of State for Petroleum Resources, Timipre Sylva revealed that Nigerians can now convert cars using petrol to gas, which is cheaper, with effect from October 2020.

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The Department of Petroleum Resources also ordered 9,000 filling stations nationwide to begin the installation of facilities for gas products.

In October, the Federal Government estimated that the Compressed Natural Gas (CNG) will cost N97 per litre, as it had promised to provide alternatives to the Premium Motor Spirit (PMS), otherwise known as petrol, for poor Nigerians.

READ: DPR shuts down 85 gas plants in Lagos for illegal operations

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