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Importance of risk management in small businesses

Deciding to start your own business is not something for everyone. Have you ever wondered why this happens? And why do some people prefer to work for others rather than for themselves? One of the main reasons is security. If the business you work for goes bankrupt, the worst thing that will happen is that you will lose your job and look for a new one. If the business you own and run fails, you will lose a little more. 

All companies, large and small, face a wide range of potential risks. However, it can be said that all risk is amplified for small business owners, simply because each loss of money and financial trap can potentially cripple a small business, which is not the case for large corporations. 

That is why putting together a risk management plan should be one of the first steps that any candidate for a small business owner takes on their entrepreneurial path!

What is risk management? 

Risk management is a process that includes identifying the risks in your business, assessing them, and then deciding how to deal with them. Did you know that 42% of startups fail because there was no market demand for what they were trying to sell? This may sound like a risk that should have been identified in the early stages of the business, but you would also be surprised at how many companies do not carry out the appropriate and necessary market research to identify such a risk. 

The process of building a risk management plan should result in the creation of a project that your company can follow to expose itself to the minimum possible risk. This will allow your company to establish procedures that will help you avoid risks and minimize the impact of those that are unavoidable. Risk management is also a cyclical process that never ends. Risks need to be reassessed continuously as your business changes and grows. 

Let's take a closer look at the process of developing and implementing a good risk management plan.

Importance of risk management for the company

Every enterprise, like every developed project, has several influences. The SWOT analysis, for example, allows identifying internal factors (strengths and weaknesses) and external factors (opportunities and threats). Thus, weaknesses and threats consist of the risks to which a company or project is subject. These risks have different probabilities of happening and can have different impacts. When carrying out risk management, the company can identify, analyze, evaluate and develop contingency strategies for such situations. By promoting such actions, the business can benefit in different ways, such as:

Optimize operational resources: When risks are identified and managed, an opportunity opens up to optimize available operational resources, since it is possible to identify which losses were occurring.

Increase efficiency: A key aspect of a threat is that it takes time for the team to get around. By predicting such risks and minimizing them, your business gains in productivity and efficiency.

Improve the profit margin: When a company does not identify a threat, it needs to solve it when it is already a problem, increasing the financial cost to reverse the situation and causing losses in the profit margin. With risk management, the chances of this happening are greatly reduced.

Assists decision making: A manager who knows the internal processes better - and who can identify threats related to the market and the competition - also has more basis for identifying opportunities and making more strategic and efficient decisions for the company. 


The use of risk management software offers several advantages for companies of different sizes, but it is common for the entrepreneur to have doubts and fears. It is also important to understand that risk management must be carried out jointly, where teamwork is essential since in this way the processes would be streamlined and it will prevent the parties from stepping on each other generating more chaos than may exist. 

One of the methods that could work is to hold regular meetings with the areas involved to share analysis and conclusions with each other.

Importance of risk management in small businesses