Communication – Severn Valley Business Group
 

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Business Risk

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Business risk comes in five basic parts; however, they are very rarely independent of each other with an event creating risk in more than one category. The point is to identify what the risk is to your business then follow the risk management process, of firstly eliminating the risk, then reducing the effects of the risk and finally protecting yourself against any residual risk.

Below are listed the five elements, which should help to identify those risks that may apply to your business, from there you should be able to Eliminate, Reduce or Protect against that risk. It may help to talk to peers or other business owners, that may have already come across these risks and whose advice may save you time and may also be a source of future work or co-operation.

  1. Strategic Risk

It’s the risk that your company’s strategy becomes less effective and your company struggles to reach its goals as a result. It could be due to technological changes, a powerful new competitor entering the market, shifts in customer demand, spikes in the costs of raw materials, or any number of other large-scale changes.

Failure to adapt to a strategic risk can lead to bankruptcy, facing a strategic risk doesn’t have to be disastrous, however, if you are able to adapt to the new conditions and change your business model, the company can survive the strategic risk.

  1. Compliance Risk

Are you complying with all the necessary laws and regulations that apply to your business?

Of course you are (I hope!). But laws change all the time, and there’s always a risk that you’ll face additional regulations in the future. As your own business expands, you might find yourself needing to comply with new rules that didn’t apply to you before.

Finally, even if your business remains unchanged, you could get hit with new rules at any time. Perhaps a new data protection rule requires you to beef up your website’s security, for example, or employee safety regulations mean you need to invest in new, safer equipment in your factory, or perhaps you’ve unwittingly been breaking a rule, and have to pay a fine. All of these things involve costs, and present a compliance risk to your business.

  1. Operational Risk

Operational risk refers to an unexpected failure in your company’s day-to-day operations. It could be a technical failure, like a server outage, or it could be caused by your people or processes.

In some cases, operational risk has more than one cause. For example, consider the risk that one of your employees writes the wrong amount on a check, paying out £100,000 instead of £10,000 from your account.

That’s a “people” failure, but also a “process” failure. It could have been prevented by having a more secure payment process, for example having a second member of staff authorize every major payment, or using an electronic system that would flag unusual amounts for review.

In some cases, operational risk can also stem from events outside your control, such as a natural disaster, or a power cut, or a problem with your website host.  Anything that interrupts your company’s core operations comes under the category of operational risk.

While the events themselves can seem quite small compared with the large strategic risks we talked about earlier, operational risks can still have a big impact on your company. Not only is there the cost of fixing the problem, but operational issues can also prevent customer orders from being delivered or make it impossible to contact you, resulting in a loss of revenue and damage to your reputation.

  1. Financial Risk

Most categories of risk have a financial impact, in terms of extra costs or lost revenue, but the category of financial risk refers specifically to the money flowing in and out of your business, and the possibility of a sudden financial loss.

For example, let’s say that a large proportion of your revenue comes from a single large client, and you extend 60 days’ credit to that client, in that case, you have a significant financial risk. If that customer is unable to pay, or delays payment for whatever reason, then your business is in big trouble.

Having a lot of debt also increases your financial risk, particularly if a lot of it is short-term debt that’s due in the near future and what if interest rates suddenly go up, and instead of paying 8% on the loan, you’re now paying 15%? That’s a big extra cost for your business, and so it’s counted as a financial risk.

Financial risk is increased when you do business internationally, exchange rates are always fluctuating, meaning that the amount the company receives in GBP will change. The company could make more sales next month, for example, but receive less money. That’s a big financial risk to take into account.

  1. Reputational Risk

There are many different kinds of business, but they all have one thing in common: no matter which industry you’re in, your reputation is everything.

If your reputation is damaged, you’ll see an immediate loss of revenue, as customers become wary of doing business with you, but there are other effects as well. Your employees may get demoralised and even decide to leave. You may find it hard to hire good replacements, as potential candidates have heard about your bad reputation and don’t want to join your firm. Suppliers may start to offer you less favourable terms. Advertisers, sponsors or other partners may decide that they no longer want to be associated with you.

Reputational risk can take the form of a major lawsuit, an embarrassing product recall, negative publicity about you or your staff, or high-profile criticism of your products or services and these days, it doesn’t even take a major event to cause reputational damage; it could be a slow death by a thousand negative tweets and online product reviews.

Conclusion

In conclusion it’s important to identify the risk, however it manifests itself, at which point you need to adapt your process or systems to enhance your risk protection, by adapting or diversifying you should be able to keep major risk at arm’s length, but don’t be complacent, you must keep your eyes open at all times for anything that may cause harm to your business and be ready to react as soon as possible, not all risks exist at this moment in time, they may appear tomorrow.

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Getting Paid (My View)

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We’re all in business to help others, provide services or goods, be the best in our field and for many other reasons, but at the end of the day we still have to pay our bills, thus we need to make a profit and to help us do this, we need to get paid.

There is no one solution to getting paid that fits all kind of businesses, however some of the points below, may in part or in combination, create a scenario where we at least have a fighting chance.

Firstly let’s be clear on the mechanics of getting paid, there are four basic ways of receiving monetary remuneration (i.e. we’ll exclude all forms of bartering):

The Cheque: This requires either a leap of faith from the customer or the vendor, in as much as goods / services are handed over in exchange for a cheque that then needs to clear, or the goods / services are withheld until funds are cleared, then the customer has to have the faith that the vendor will fulfil his commitment.

Plastic (including the likes of PayPal): Here payment is instant and the customer has an array of guarantees on top of their statutory rights, however there may be charges associated with this transaction, which can either be passed on to the customer or absorbed by the vendor.

Bank Transfer: With this system the customer can arrange to transfer money directly from their accounts into yours, this is clean and quick, usually doesn’t take long to clear those funds and doesn’t usually attract any charges.

Cash: We all know about cash and is usually used where goods are exchanged directly to the customer, assuming that you haven’t been paid with forged currency, then you know that you have been paid, the only downside is the vendor now needs to make a trip to the bank or buy a bigger mattress.

For most businesses one of the above will be more suitable than the others, or a combination of them (i.e. cash and credit card is common amongst retailers) but this is where the solution of the mechanics of getting paid is down to the business you are running.

Secondly there are three ways of being paid, which again depending on the business you run, will have a preference as to how you make this happen:

Payment in advance: This is where the customers pay for the goods or services prior to getting them, we touched on the cheque earlier, this would be cleared prior to the goods being dispatched, but could also cover services in as much as a retainer could be charged for future events (servicing, professional services etc.)

Payment at point of sale: No matter what the mechanics of payment are, there is an exchange of funds for goods or services at that specific event (mainly used by retail outlets, but can equally be applied to services if required)

Credit: This is where the goods or services are supplied in advance, then payment should follow according to the conditions that have been laid down for payment (this is mainly used where a credit facility is offered to the customer, in order to allow for deferral of the payment and is mainly used in the service industry)

No matter what method of payment you adopt, payment in advance or at point of sale will not give any problems with getting paid, however the main issue is with credit, in that the vendor will always have to trust that the customer will fulfil his part of the agreement and make payment when due.

It’s apparent that the main problem to getting paid is where we allow credit facilities, accordingly this is where we need to put certain processes in place in order to limit our exposure to this problem and prevent the reasons for non-payment.

Let’s be absolutely clear as to what the transaction is and what are the goods or services on offer?

We must make it clear as to what is being offered, a vague reference to “widgets” is not good enough; how big are they, what colour, which model, what is the end product. In other words there can be no argument as to what ends up being supplied, make sure that this is written down and that both parties have access to this.

How much will the goods or service on offer actually be? Saying it’ll cost about £XXX will not do, give a price for the complete service, or break it down into its components or give a price per item (whether this be product or time) whichever way you split the costs, make them clear, including the currency in which you want to be paid.

Make clear as to whether or not there may be discounts available, for additional services or for supplying larger quantities, but be specific as to how these discounts will be applied.

Are there any optional extras to be had? This is the point that can be used to upsell, if the products or services can come with “bells and whistles” then say so and how much these variations will cost. By giving this information in advance it will avoid confusion later on, especially when it comes to the value of the final value.

What are the terms of payment for this arrangement, 7 days, 14 days, 28 days or nett monthly, whichever you chose to give your customer make it clear, never say from receipt of invoice as you do not have control on when this is recognised (unless you use registered post etc.) but better from date of invoice. Avoid nett monthly as this could lead to 60 days of credit, which is not good for cash flow.

Make it clear as to how you want to get paid, Cash. Cheque, Plastic or Bank transfer, for example a bank transfer is instant, a cheque will delay payment for a few more days depending on when it is issued and the working arrangements of your bank

The above constitutes an offer or quotation, this does not mean that you proceed, but you should await an instruction of some form that refers directly to this, at this point confirm the instruction giving any additional information, such as confirming attendance dates, delivery dates or specifications.

Once the goods or services have been supplied, then issue your invoice, which must reflect exactly what was in the accepted quotation or any agreed variations to this, make sure it is dated (tax point), when payment is due (payment terms), detailed value of the transaction, how payment should be paid, any references that the customer has asked for (order number) in other words don’t allow any confusion or space for questions.

The problem arises when the above is still not adhered to and payment is not received on time, in which case you should follow these steps:

Chase your payment at a fixed time after the due date (this may depend upon you relationship with the customer) make sure that this is polite, as they may be having problems and an offer of help will be received better than a threat.

If payment is still not received, then chase again at a set time after the first chase, include a copy of the first one, still be polite but request that payment be made without any further delay

At a set point after the second chase, a third chase will be required, again include a copy of the previous two, but insist that as the previous ones have not been actioned, that immediate settlement of the account be made.

If these chases do not have the desired effect, then it’s time to bring in the solicitors, start by getting them to issue a “7 day letter”, receiving a letter from a solicitor usually has the effect of getting a result and is not costly.

If this fails then you will have the right to seek judgement against the debtor, the costs of which will be added to the debt as well as interest on the debt, failure to meet any judgement will allow you to take one of the following actions:

Seek a warrant of execution: whereby you can get bailiffs or the sheriff to seize goods to cover the debt

Get an attachment of earnings: where you can get a sum of money taken from the debtors pay at regular intervals until the debt is cleared

Take out a third party debt order: this will allow the debtors accounts to be frozen until the debt is cleared

Take out a charging order: whereby you are allowed to register a legal charge against any properties owned by the debtor

All of this assumes that the debtor is able to pay, should you believe that this may not be the case, then a judgement call needs to be made as to whether to pursue any action or cut your losses. In addition to the above you could apply for a statutory demand (this really should only be pursued when you know the debtor has sufficient funds, but is deliberately withholding them) whereby after 21 days you could start winding up proceedings, but don’t forget our friends at HMRC and the banks will get first dip into any pot.

The main point of the above is you must have a procedure in place to deal with debtors and stick to it, there is no room for sentiment when you have a mortgage to pay, but the most important thing is make sure that everything is in “black and white”.

 

 

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Networking, A Duffer’s Guide

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This is my first ever blog, having learnt how to tweet, now it is time to discover how to blog!

This week it was my turn to give the presentation, the subject was:

 Networking, A Duffer’s Guide

We started with a discussion of the various types of networking our businesses are involved with.

It was decided that there were many types of “networking” that we are involved with, including:

  • Formal breakfast type meetings
  • Seminar and training meetings
  • Membership of trade organisations and professional bodies
  • Social and sports meetings
  • Circumstantial meetings (school playground meetings)
  • Online and social media
  • Volunteering
  • Going to the pub
  • Recommendations from past clients
  • Corporate events
  • Providing talks

It was felt that many people are put off the more formal types of networking by the fear of the hard sell that can be involved with some groups.  As a group we felt that real networking is about building networks with people rather than selling to people.  We concluded that the most important things are:

  • Trust
  • Communication
  • Bringing people together
  • Networking works better for small businesses
  • It must work both ways
  • Providing good advice

We then had a discussion on the best way to make introductions at large networking events and came to the conclusion that going to events with people you know, so you can make introductions.

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