Is your business increasing your risk of heart disease?
Business owners often choose the entrepreneurial path because they want the freedom to make their own schedule and be their own boss. But this freedom can come at a price. A recent survey from New York Enterprise Report found “small business owners work twice as much as regular employees.” Data collected from the Gallup Wellbeing Index also shows “45% of entrepreneurs report being stressed compared to 42% of ‘other workers’.” Taking into consideration the high-stress lifestyle most business owners lead and the fact that February is American Heart Month, we think risk reduction is a prescient topic.
Experts emphasize the importance of living a “heart-heathy” lifestyle – regular exercise, good diet and stress-management practices – to reduce our risk of heart disease. The same basic idea applies to a business. One of the three ways to increase the value or “health” of a company is to reduce risk. This just so happens to come with the added benefit of reducing business owner stress in the long run.
Business risk can be summarized as any internal or external force that threatens a firm’s viability. Broadly speaking, when risk is considered in valuing a company, there are macro, industry and company-specific risks (CSR). For private companies, CSR is where the action is because owners have more control and, with the right approaches, can move the needle in effective value creating ways. Risk in this context, can be broken into five categories: strategic, operational, financial, regulatory/legal and reputational. Examples of each could be:
Strategic: a viable competitor enters your market with a new product or service that challenges your ability to retain customers.
Operational: your supply chain breaks down.
Financial: you are aggressively leveraged, and interest rates rise.
Regulatory/Legal: you make promises to a customer that the company can’t support.
Reputational: your safety program is inadequate due to lack of training; someone is gravely injured and you are sued.
Given the sacrifices a business owners make daily for their business, few things are likely as stressful as the prospect of it failing. And while it may take some added effort (a.k.a. stress) up front to establish a sophisticated risk management system, doing so will contribute significantly to the future vitality and saleability of said business. Good business planning isn’t just good for your business, it’s also good for your heart.
Here are some quick and easy ways to begin reducing business risk:
FOR OWNERS
Create a scorecard to help you identify risks in each of the five categories. Score each risk by likelihood and impact on a scale of 1-5. Adding the scores together helps you prioritize and tackle the highest risks.
Develop written contingency and succession plans (two different but related things). Both eventually require professional oversight and intervention, however this RFN Academy program is a great way to get started on your own.
Take our free RFN owner dependence scorecard to help you determine how owner or c-suite dependent your organization is.
FOR ADVISORS
Transition Readiness: How to Prepare Your Clients program – a quick and effective guide to help kickstart your transition readiness conversations with clients.
Exploring Transition Options program – strengthen your understanding of transition options and value acceleration to help guide owners to a successful transition.