Businessmen must map their risk leverage ability to ring-fence their unknowns
January 10, 2023

By Tariq Chauhan, Group CEO of EFS Facilities Services Group.

 

The risk leverage ability in business is a factor to reckon with. Entrepreneurs need to thoroughly vet their ability to take on risk leverage – not only in the context of the business’s debt but as a measure of the company’s overall risk resilience.

Be it the enterprise’s entrepreneur, shareholders, or management; everyone must know how to manage risk factors and the unknowns that come with them. What does this entail? Conventional wisdom suggests not to do anything that stretches matters beyond available means. People often make fatal mistakes in evaluating risks and jumping the signal. I suggest formulating a prudent risk strategy where you stretch to the extent that you don’t break and only take risks that you can consume.

Known risks must be specifically identified and factored into the planning and execution of the strategy. For instance, if initial capital is insufficient to support ongoing working capital needs, map it against available cash resources, including bank finance or subordinate debt, with a definitive eye on contingencies such as a private loan or asset sale that you can indeed manage.

No easy money out there

How often do you see business owners make assumptions, thinking family, friends, and angel investors would come to rescue if things go wrong, to the extent that they even make it part of their plan B? It might work. But to what extent does help come your way, especially if your exposures are monumental?

Be realistic when mapping for contingencies. Rise above emotions and sentiments and be strictly realistic. Map the available contingencies with plans A, B and C. Plan A and B may fail, so always work multiple scenarios considering the moving parts in the business, to overcome the fear of failure in business, emotions, and egos that come into play. Unfortunately, this is counter-productive.

A time to regroup

At times it could be faltering sales targets or receivables or the spike in production or cost of sales that can upset the projected plans. Here is where there is a need to plan using all permutations. At times, it is essential to retreat and take stock of the situation by realigning your available – and constrained – resources.

If sales targets are plummeting, how to reduce overheads whilst planning new approaches and tap funds to support cash deficits, if any? My advice is not to delve into business until you ring-fence your reversibility factor. Many call it a business temperament that people must possess if wanting to enter. My contention is about the quantum of maximum risk one can take, which is much beyond financial risk.

Planning for all the unknowns

Look at extremes of the unknown – not just sales, cashflows, cost overruns, bank u-turns, and key people unavailability, which can extend from critical illnesses, family exigency, and team exits to events such as Covid, labour exits, etc. If the unknown strikes, how much can you salvage and manage the downturns?

It could be that you can manage a possible stretch by selling your immovables or borrowing. The worst is where you may have to live with the least resources to manage the downturn. More than ever, the key resource is your own mental and physical preparedness.

Are you prepared to handle the stress and its related pressures?

 

Source: Work Life Mantras

Share

CEO SPEAKS


EXPLORE

EFS Facilities Services Group © 2021 All Rights Reserved.