Welcome to Module 10 which will cover everything you need to know about revenue and profit! If you are just joining us, we recommend you start by completing Module 1: How to Write an Application 101, Module 2: Value Proposition, Module 3: Customers, Module 4: Target Market & Market Size, Module 5: Business Model; Module 6: Goal Setting, Module 7: Revenue & Profit, Module 8: Capital and Module 9: Challenges.

Overview

Every business faces the danger of unforeseen events that might disrupt its operations, have a negative impact on its finances or even lead to a total shutdown of the business. To mitigate the effect of such unforeseen events, business owners must understand business risk.

Business risk is the exposure a business has to certain factors that can lower its profits or lead to its shutdown. Anything that threatens your business’s ability to achieve its goals is considered a business risk.

There are many factors that can create business risk: sometimes leadership or management create situations where a business may be exposed to a great degree of risk. However, sometimes the cause of risk is external to a business and cannot be controlled by the business. Some common external risks include: 

• Strategic risk - Strategic risk arises when a business does not operate according to its business model or plan due to external factors such as the sudden entrance of a new competitor or a price war in the industry.

• Compliance and regulatory risk - Regulatory risk is the effect of a change in laws and regulations that could potentially cause losses to your business or industry; for example, the introduction of new rules or legislation..

• Changes in government policies, political stability, tax implications, or industry regulations are also external factors that can be a risk to your business.

• Financial risk - Financial risk refers to your business' ability to manage your debt and fulfill your financial obligations due to change in interest rates or an increase in exchange rates or inflation.

• The advancement of technology also poses a risk. Technology risk is the potential for any technology failure to disrupt your business. Some common tech-related risks include a breach in data protection and security, hardware and software failures or cyber attacks.

• Physical and environment risks - These risks arise from the physical environment, such as exposure to chemicals, physical hazards, or climate change; for example, gas explosions or flooding. 

• Contextual risks - These are created by unusual circumstances. For example, the COVID-19 pandemic was an unforeseen circumstance which also created new risks for businesses in the form of massive supply chain disruptions, reduced investments and high unemployment, political and economic instability, etc.

As a business owner it is your responsibility to create a plan to limit your business exposure to risk and to do this, you need to:

• First, understand the different types of risk your business could face.

• Second, perform an assessment to identify the risk factors most likely to affect your business.

• Third, measure the potential impact of each potential risk and rank accordingly.

• Fourth, based on your evaluation, develop contingency plans to mitigate these risks by:

• Defining proactive preventative processes and training to reduce the chances of specific risks happening to your business

• Creating detailed strategies for minimizing the impact and cost of risks that may occur

• Sharing the risk exposure between your company and third-party organizations (purchasing insurance policies is a great way to do this!)

• Establishing processes to continuously monitor risk levels and to identify new risks - this will guide you to develop and modify your strategy effectively

Without identifying your business risks, it is difficult to successfully define your objectives and set out strategies for achieving them. Understanding and managing risks allows you to control, and often prevent, the challenges associated with such risks.

AWEC is an experiential, applied learning program, which means we promote business growth by having fellows immediately apply what they learn to their own business. We have created the following tools to help you apply the knowledge from this module to your business. We encourage you to download the tools below to strengthen your application AND your business!

Well done to you for completing your tenth and final module! We hope that you have found the content and learning tools helpful and applicable for your business.