Reduce your risk exposure

A common theme throughout the series of shocking news stories this week is exposure to risk. We have all read the reports on the latest victim of the financial crisis, HBOS, which has high debt exposure in the beleaguered property sector.

There are many areas of risk within business – and, if they are not carefully managed, any one of them can severely damage your ability to trade, or even cause you to go out of business. We have seen a number of examples this week of how this can happen to some mighty corporations – as small businesses, we can be much more vulnerable.

So, what are some of the key risks facing us and what can we do about them?

Finance/funding

In the wake of the Lloyds/HBOS merger announcement, commercial property investors are now worried that their facilities will be under threat as Lloyds seeks to reduce its exposure to the sector. They have good reason to worry. Personally, in just the last couple of weeks, I have heard of two small businesses in this sector where finance has been withdrawn or refused. Until alternative sources of funding are in place, neither business can move forward.

And it is not just the property sector that is suffering. A small car leasing company I know is finding trading increasingly tough, as finance providers are tightening the terms on which they will offer finance, resulting in much fewer successful applications. I have many more examples as I am sure do you.

So what can be done to minimise the impact of such shifts in the market?

Where possible, spread your risk in this area – do not just rely on one lender or type of finance. If appropriate for your business, consider the role of less traditional types of finance, such as factoring and asset-based lending. Often, more innovative solutions can be found in this area as more traditional forms of finance dry up.

Beware, however – not all providers in these areas are created equal, so seek good advice from a respected source to help ensure you make the right decisions on both the type of finance and the lender. My friend and colleague Adam Thwaites, from Infinity Finance, is an expert in this area and I would highly recommend that you contact him to seek advice in this area. You can contact him via www.infin.co.uk or drop me a line and I will put you in touch.

Keep your providers in the picture, so they can have confidence in your business performance. This is particularly important if things don’t go quite according to plan! Proactive communication will reassure your lenders that you are in control of your business and help you to identify early on if any of your sources of funding are at risk. Surprises in this area are bad news!

I will leave your to get on with your Friday now, but I will be back tomorrow to look at vulnerabilities in your customer base.

Have a great day!