Preface: Being respectful of the high finance parable in the Bible, we’d say it is better to having taken business risks and lost, than never having taken business risk at all.
Investing to Double Your Businesses Value – Part VI
The Bible has very clear instructions in the world of high finance from Luke 19: 11-27. A nobleman goes on a journey and assigns three servants to invest money. Two servants take risk and one is fearful and takes no risk. The fearful servant likely has reason per the exemplified power of the nobleman; and two servants who took risk are successful, and promoted to high positions.
While there are different interpretations of Jesus parable, the face value moral is that risk in high finance, (i.e. applied to business) of taking risks is advised as less risky, than the risk in avoiding risks. Assumption: the servant’s position with that level of responsibility, certain training was likely par for the course.
Entrepreneurs assume risks too. Managing risk is Part VI of Investing to Double Your Business Value. Risk management is a multiple step continuous process. Identifying the risks is a first step to managing those risks, e.g. economic, operational, marketplace, and financial risks. Identifying risks before they develop is well-advised, but identifying risks before they become terminal is as vital.
In risk management one of the most problematic mistakes is a wrong diagnosis of the risk, e.g. a truck load of type writer ribbons at 50% discount, will be easily marketable. Marketplaces change and adapt, and entrepreneurs must manage the risks of those changes and adapt too. A more practical risks example is as follows. Are your business sales subject to consumer financing or only a discretionary consumer expense? What major enterprises drives commerce in your business locale or sales radius. What factors would change or influence your customers purchasing habits and therefore result in sales volume risks?
Risks will appear in your financial statements. Small business owners can sense risk. Larger enterprises must make decisions from the financial numbers. If you track accurately month-to-month financial performance, with a good understanding of how your financials work, you can identify and quantify risks immediately (with-in months), and begin working towards resolutions. This is step two of risk management – analyzing operational and financial data to quantify and assess risk development and implement quick mitigation. For instance, if your business MAP to increase sales, as a first step, is to hire one new employee, it is important to have a plan in place to track that performance with expectations. Or say, if your business is repairing lawn mowers, how can you track efficiency gains on that additional talent; or say what if you’re a lawn service technician, and a $700 robotic mower is introduced to the market? You need to identify trends early, and envision and respond to the risks.
Responding to risks and responses. The response to an early morning coffee or a missed train are different than responding to major customer transitions or marketplace innovation. Planning responses to risk is advised. For instance, if you’re acquiring a competitor to double business value, how can you minimize risks of cash flow on debt financing, if you simultaneously are increasing overhead with new employees. How will you respond to cash flow risks if a new employee requires three months training to perform billable work, and your projections are an unrealistic one month of costs?
Watching risks. You must always be alert for business risks. From project risk on a construction site, to office risks of cash management, an entrepreneur must be alert and continually monitoring risks. An awareness of risk, and the ability to manage risk, and not fear it, is important [emphasis added].
Being respectful of the high finance parable in the Bible, we’d say it is better to having taken business risks and lost, than never having taken business risk at all. Manage the risks. Talk with your trusted advisors. The fearful servant likely didn’t even have a conversation with a trusted advisor, or another servant, he seems to have simply trusted his own knowledge entirely. You have the advantage, because you can see and read and learn. At minimum, he should have likely set expectations with the nobleman. What are your business expectations and what are the risks in those expectations, i.e. double business value?
Part VI of Investing to Double Business Value – Manage Risk.