As a business leader, you are faced with evaluating many types of risk within your operations. Some risks are manageable, whereas others may be out of your control. However, it is important to identify risks so they can be monitored throughout your company’s lifecycle. Here are a few strategies to manage risk in three common, yet critical, areas:
1. Interest Rates
Interest rates are at historic lows, and companies with variable rate loans have enjoyed modest interest costs the past few years. With that said, though, the only way for rates to move in the future is up. Now may be a good time to evaluate your situation. For companies with several long-term loans, bundling and refinancing with a competitive rate may be an option. Not only would this help to mitigate higher interest costs going forward, it will also give your company the ability to better plan its cash flow. For those companies with less than stellar financials, finding a lender may be tricky, but options exist.
Concentrations are typically found in a company’s vendors and customers. Managing vendor concentrations can be as simple as identifying alternative sources for the products or services that are being purchased. It may not be necessary to immediately diversify with vendors, as you may end up giving away purchasing preferences. However, knowing your vendors’ competitors is important because you may need alternatives down the road.
Managing customer concentrations may not be as easy. Many companies choose to live with this risk, as the cost to expand into new markets may outweigh the risk of losing a major customer. Pay attention to what is going on in your particular industry or sector of the market in order to stay ahead of any changes.
3. Covenants Not To Compete
In many businesses, employees gain knowledge and have access to many intimate details of a company’s operations. This can involve access to key customer information, proprietary processes in production, a company’s pricing strategy, or other research and development activities not yet revealed to the public, all of which are critical to the value of the business.
When a key employee exits a company, the cost to identify, hire, and train a replacement is significant enough. You do not want to also worry about the threat of intellectual property or customer relationships being compromised. For new hires, adding language to the employment agreement that includes a covenant not to compete may be a good deterrence. For any current employees who are not under a covenant not to compete, you should speak with the attorney who handles your company’s employment matters, as he or she may have other strategies to help manage this risk.
In short, identifying and monitoring your company’s risks can provide a significant measure of protection and help prevent bad situations from turning into potentially catastrophic ones.
Steven E. Staugaitis can be reached at Email or 215.441.4600.