The Battle of Stalingrad, in the Second World War, continued for nearly six months.
Towards the end of 1942, a German tank unit was preparing to join the battle. It had been waiting in reserve on grasslands outside the Russian city.
But when the unit came to move, the tank operators were in for a shock.
Almost none of the 104 tanks worked.
The engineers soon found the cause: While the tanks had sat motionless, field mice had nested inside, and eaten the insulation protecting the electrical systems.
The formidable machinery was defeated by tiny mice.
The story – recounted in Morgan Housel’s excellent book, The Psychology of Money – is a classic example of unforeseen (but possibly foreseeable) risks.
In a business context, there are many of these.
Take, for example, the collapse of SVB bank. It is clear that until hours before the collapse, most of its customers had no idea of the disaster ahead. Indeed, as I discussed last week, many had no other bank account, leaving them with a single point of failure in their business.
Other risks you may face include a supplier failure; the loss of a big customer; your IT system going down; another pandemic; currency changes; and more.
Just like the field mice, it is often risks that come from outside your business which you are least likely to see. And because they are outside your control, not only can they blindside you, but they’re also the ones which can prove most fatal.
So how do you deal with these risks, and build a more resilient business?
When Warren Buffet announced that he was searching for his successor in 2006, he said he was looking for someone “genetically programmed to recognise and avoid serious risk, including those never before encountered.”
Business owners must take the same attitude. Identifying risk is nowhere near as exciting as identifying opportunity, which is why it’s too often neglected. But it’s a critical business skill.
So take some time to assess the vulnerabilities in your business. Think about how you would cope if one of the essential tools or people your business relied on disappeared. How resilient would you be if those things stopped working?
Then draw up your Plan B, looking at what you would do if the worst really did happen. Simply thinking through what actions you would take will help you act faster in an emergency, and probably expose gaps that you can act now to fix.
Now, you may be wondering why I’m talking about IT systems and suppliers in an email that usually focuses on improving your financial management.
It’s because protecting your business from potential harms is a financial matter. If your IT system or suppliers or bank or main customer goes down, your ability to operate smoothly could be hampered and your income could be in serious danger. The future of your business could even be at risk.
It all boils back to money. Of course it’s a financial issue!
That’s why, when we manage your finances, we help our clients think through the main risks you face. We might not be able to identify absolutely everything, but we can take a good stab at it.
It’s how a responsible, grown-up company operates – not just playing offense, but protecting your flanks as well.
Chances are, this is not a service that your current accountant offers. But if your business is ready for that kind of world-class financial management, please get in touch with me today.
Simply email garry@insightassociates.co.uk to arrange a no-obligation chat about your business and how we may be able to help you grow faster, maximise profit – and control financial risks.
Warmly,
Garry
PS. In our business, the top issue on our risk register is staff not turning up to work because they’re sick or indisposed. We need to make sure that their workload can be covered so we can continue to serve our clients to the highest standards.
That’s why we regularly move jobs between members of our team, so that more than one person is aware of how to perform every task.
When you work with our Outsourced Finance Department, you’re buying a service, not a person – you won’t notice any change to the service you receive if one of us is absent. That’s one of the advantages of outsourcing.
Call me today on 01279 647 447 to find out more.
