Risk Management: A Guide for Start-Ups

Start-up businesses have defined the economic landscape of the UK in the last decade, with successive Conservative governments championing entrepreneurialism in all its forms. Today, though, starting a business is not as easy as it once was. There are numerous risks and challenges involved, to say nothing of the current economic landscape. To this end, having a strong risk strategy is vitally important to business success. But what would such a risk strategy entertain?

Financial Risk Management

The first, and perhaps foremost, form of risk management that start-up entrepreneurs concern themselves with is financial risk management. This refers to the risks a new business takes on in debt, credit, investment, and expenditure. Many start-ups rely on high levels of seed funding from numerous sources, repayment of which needs to be managed equitably.

The biggest risk faced by start-ups, though – and particularly after the first year of incorporation – is that of negative cashflow. Investors in a business will use cashflow as a yardstick by which to measure the solvency and longevity of an established business; negative cashflow is not caused by falling profits, but instead by an imbalance between income and outgoings. It could be caused by the paying-down of debts or investment in assets, but either way represents a lack of liquid cash – and potential hardship as a result.

Legal Risk Management

New businesses also face unique risks in the form of legal compliance or challenges. This is particularly true of businesses emerging in new industries, as with blockchain fintech – where regulatory compliance is both necessary and exceedingly complex. All companies, though, are beholden to compliance with regard to health and safety legislation.

Here, legal risk management is also somewhat interlinked with managing financial risk. Certain legal challenges or undertakings can introduce fresh financial burdens, as with personal injury claims put forward by site visitors or employees. Civil action could result in settlements or expensive court cases, each of which presents its own cashflow and PR risk. To this end, ensuring compliance with legal frameworks can ensure sustainability and longevity.

Operational Risk Management

Ensuring a safe and proper working environment is a crucial aspect of managing risk in another area: operational capability. A catastrophic workplace incident or injury can have knock-on impacts on projects underway; for example, a manufacturing plant might have to cease operations after a workplace accident to investigate and service equipment, delaying delivery and disincentivising clients to continue using the business.

Ensuring health and safety processes go above and beyond industry requirements is a strong route to operational security in this regard. The lessons here can also be applied elsewhere in the business, from ensuring robust payroll processes to outsourcing vital tasks.