New numbers from leading economists are predicting a slump in economic growth as we push forward into 2020. Though these analysts don’t believe this downturn will spark a recession, it could be a sign that business leaders need to be prepared. But do you know how to prepare your business for tougher economic times? One avenue that could help guard your business against an economic downturn is comprehensive risk management. Our Redwood City business counseling attorney may be able to provide the tools to help your business manage risk.
Why Is Economic Growth Slowing Down in 2019?
On March 25, a report from the National Association for Business Economics (NABE) projected that economic growth measured by the gross domestic product will be down this year and next year. The group predicts a 2.4 percent growth this year and a 2 percent growth in 2020. In December, the NABE predicted a 2.7 percent growth for 2019, and the NABE isn’t the only organization to lower its predictions.
Just a week before the NABE released its new projections, the Federal Reserve also amended its numbers for GDP growth. The Fed predicts the economy will only grow 2.1 percent in 2019 and 1.9 percent in 2020. This change is concerning considering that the U.S. economy grew 2.9 percent in 2018. Analysts believe that two factors are lowering predictions from the Fed and the NABE. The first is a slowdown in global markets. The other factor is the retaliation some trade partners are imposing due to the increased import taxes issued by the White House. So, how do business owners guard their companies against potential economic turmoil? Business risk management may be the key.
What Are Business Risks?
The word risk can be defined as the potential to suffer loss or harm. For business owners, that can mean possibly losing money, facing a lawsuit or being forced to close their company. Managing these risks helps businesses avoid these situations. The four main categories of risk are:
- Compliance
- Financial
- Operational
- Strategic
Other risks to your business may include natural disasters, staffing problems, health and safety.
How Do You Manage Risk?
In order to manage these risks to your business, you need to first identify them and evaluate the harm they can do to your company. If you have extended credit to a business partner or customer, you are taking a financial risk that they will pay you back. Contracting with a particular supplier on an exclusive basis could be an operational risk, because your production could be affected if that supplier is late or unable to provide the parts you need.
Once you have figured out the type of risks your business faces, then you can start evaluating and ranking those risks. Let’s say a small company in San Diego goes up for sale, presenting a strategic risk to your business. If your competitor buys that company, they can extend their distribution chain further into your territory. Will that significantly hurt your business? If the answer is yes, then this could be a high-ranking risk. If this is the case, then figuring out your company’s response to this risk is a high priority.
What Can Businesses Do to Manage Risk?
Every business risk that presents itself can be dealt with in several ways. You can accept the risk, eliminate it, reduce it, transfer it or you can do a combination of these options. To keep your competitor from extending their distribution chain, you may decide to buy the small company for sale in San Diego. That would eliminate the risk of your competitor buying that company. If you’re afraid depending on one supplier will slow production too much, negotiate a non-exclusive deal so you can have a secondary supplier ready. Having a secondary supplier reduces the risk that your production will be slowed by supply chain issues.
Setting up a risk management policy can help you by creating an approach to how you handle business risks. However, a lot of work has to go into evaluating not only your current risks, but risks that may present themselves in the future. This is when it pays to have a Palo Alto business counseling attorney by your side.
How Can a Business Counseling Attorney Help You Manage Risk?
At Winghart Law Group, Inc., we provide efficient, cost-effective legal services to businesses in many industries. Our experience can help you manage business risks through preventative measures such as intellectual property protection and strong business formation practices. We can also help you evaluate the risks to your business to help you make the right choice when it comes time to manage that problem. Our firm can even help deal with insurance companies when you need to make a claim against your policy. Call (650) 456-2925 for a free 30-minute consultation and seize the opportunity to learn more about how to manage risks to your business.