7 of the Most Common Risks to Be Aware of as a Business Owner in Texas
With 2.8 million small businesses employing 4.7 million people, Texas has the second-largest gross domestic product, valued at $1.77 trillion annually. These businesses account for over 97% of companies and employ about 50% of the state's workforce. All this indicates that the Lone Star is a great place to start a new business but it also means that you will face fierce competition and a number of other challenges.
Running a business takes work and comes with a number of risks that might stand in the way of achieving your goals. While some of these risks will be unique to your business, others are more universal and easily foreseeable. The good news is, there are certain steps you can take in order to manage and mitigate these risks. For instance, purchasing commercial insurance in Texas can help business owners protect themselves, their staff, and their livelihoods.
If you want to know more about it, here are the 7 most common risks that every new business owner in Texas should keep in mind.
1. Compliance Risk
Compliance risk refers to the potential of your business to violate a regulation or a law. Compliance risk can result from insufficient control systems, human error, lack of due diligence, or lack of training. Compliance risk can expose your business to a number of consequences, including material loss, legal penalties, financial forfeiture, voided contracts and damaged reputation.
Staying knowledgeable and up-to-date with applicable laws from federal agencies such as the Environmental Protection Agency, as well as those from local and state agencies in Texas can help you reduce compliance risks. You should also consider seeking assistance from consultants who specialize in compliance and make a habit of reviewing government agency information on a regular basis.
2. Operational Risk
Operational risks can happen externally, internally, or involve a combination of factors.
They include security failure, fraud, legal breaches, environmental risks, or physical failure (e.g. natural disaster or fire). This type of risk can have a negative impact on client satisfaction, your company's reputation, and shareholder value.
As long as people, processes, and systems remain imperfect, operational risks cannot be completely eliminated. They are, however, manageable if you ensure that you have processes in place that identify and report them.
For instance, many businesses are using cloud storage in order to protect their data and rely on remote teams to maintain operations. Automating more processes can also help reduce failures caused by people.
3. Economic Risk
Economic risk refers to the possibility that changes in macroeconomic conditions (for instance, exchange rate fluctuations or political instability) will have a negative impact on your business.
Even though it is possible, predicting economic risks is quite challenging. It is important to watch trends and changes to potentially identify and plan for an economic downturn. You should also consider saving as much money as possible in order to maintain a steady cash flow and/or operate on a lean budget with low overhead through all economic cycles.
4. Financial Risk
Financial risk refers to a business's ability to fulfill its financial obligations and manage its debt. It usually arises due to losses in the financial market, instabilities, or movements in stock prices, interest rates, currencies, etc.
One way to decrease the financial loss for your company is to make adjustments to your business plan. These adjustments should include steps that will help you start lowering your debt load. If you rely on the majority of your income from 1-2 clients, your financial risk can be substantial if one of them decides that they no longer want to do business with you. Marketing can help you expand your client base, so the loss of clients won't have such a devastating impact.
5. Competition Risk
Competition risk refers to the possibility that competitive forces will prevent you from achieving your business goals. This, in combination with an unwillingness to change, might lead to loss of customers and affect your profits.
In order to prevent this, company leaders need to continually reassess the organization's performance and make sure they don't become so comfortable with their success and the status quo that they stop looking for ways to make improvements. They also need to work to refine their strategies and maintain strong relationships with their customers. In addition, it is important to keep a close eye on your competitors by monitoring what they are doing and how they use social media and other online channels.
6. Reputation Risk
There's always a risk that an unsatisfied client, lawsuit, negative press, or product failure can tarnish your brand reputation. Social media has made things even worse by amplifying the spread and reach of negative word-of-mouth. Just a single bad review or comment can significantly decrease your following and cause profit loss.
Having a reputation management plan can help you monitor what people are saying about your brand both offline and online. Make sure to respond to all comments and try to address any concerns as quickly and efficiently as possible. Finally, be sure to keep providing quality products and services in order to avoid product failures and lawsuits that could also damage your brand's reputation.
7. Security Risk
As more customers use online and share personal data via mobile channels the opportunities for cybercrime are increasing. With businesses increasingly relying on IT systems and data, the risk of cyber threats has increased significantly and last year, the Allianz Risk Barometer ranked cyber incidents as the most important risk to businesses. From malware, DDoS, phishing, data breaches, payment fraud, identity theft, and ransomware, these attacks can have a long-lasting impact on businesses, ranging from damaged reputation to financial loss.
To achieve effective risk management, consider investing in security solutions, fraud detection tools, as well as customer and employee education about how to detect potential cybercrime issues.
Doing business in Texas comes with an abundance of risks, and the ones mentioned in this article are just the tip of the iceberg. However, knowing the most common hurdles facing your company can help you prepare an efficient management strategy and improve your chances of success.