Here's why you should have one and the four instances it will come in handy...
Here's why every business should use a risk register
In case you believe your business doesn't need one, you shoould know that there are two sources of risk:
• External risk: Like fluctuating currency exchange
• Internal: Like financial statement fraud
, the fine print in leases and loan agreements that have unreasonable clauses you may not even know about.
This means that even if you have internal controls in place to handle risks within your business, there are external risks that can hurt your business financially.
But if you use a risk register, you can analyse your risks and set up processes to manage them. Doing this mean you can either:
1. Stop them before they become a problem; or
2. Put processes in place to eliminate them from happening in the first place.
Keep in mind that the most efficient way to manage risk is with a risk register!
Here's a useful tip: There are certain risks that you can't plan for. Keep in mind that if you don't handle every aspect of your business, you won't know all the risks out there. Moreover, make sure that everyone in your business is aware of the risk register. Thus, in case they think of a risk to include, they must present it immediately to management.
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Here are the four best times to create a risk register
1. When you prepare your annual budget:
This is the moment when you analyse the internal and external opportunities and threats so it's easy to use this analysis to compile your risk register.
2. When you renew your insurance:
You should know that insurers charge a premium for risks. You could benefit from having a risk register that may help you convince the insurers to reduce your premiums.
Some insurers even ask to see your risk register and a well-documented one can positively influence your insurance premiums. If they don't ask – offer it to them.
3. When you want to sell your business:
Offer your risk register to potential buyers. It makes the purchase decision that much easier. Compile your register before you put your business on the market. Doing so will answer any questions potential buyers may have and give a good impression on how your business managed its risks.
4. You start a new business:
Once you've compiled it, give it to your accountant and bookkeepers. It'll act as a guide, and they can build on it as they go through the process of dealing with the financial aspects of your business.
Bottom line: If you analyse and document risks, you've taken the first step to manage and mitigate against it. Start using a risk register today to reap these benefits.