One small problem with my electric car06th April 2022
Last July, I treated myself to a new electric car.
I absolutely love it - it’s the future - except for one little issue...
In the 9 months I’ve owned it, it’s been off the road for 3 months!
You see, it’s had two very small failings which in normal times could be fixed in a matter of minutes. But this year the car industry has suffered horrendous parts shortages and my garage simply hasn’t been able to get hold of the necessary spare parts.
They’ve had to supply me with a courtesy car, which must have cost them thousands. And my car is just one of hundreds off the road at the moment because of the same known fault.
So should my garage have stockpiled these parts in advance? Could they have done more to find an alternate supplier? Or is this just of those things you can’t predict?
It’s all down to risk management.
As I mentioned in my last email, understanding the biggest threats to your business must be your #1 financial priority in this rocky economic environment. Making sure you can survive any upheaval ahead is far more urgent that planning for growth right now!
The problem is, most companies have no idea how to assess the risks they face - let alone how to manage them in advance.
So today I want to share a very simple framework with you, which I hope will make things easier.
Sit down with other members of your leadership team, and together, brainstorm all the financial risks your business might possibly face.
These could either be terrible things that could happen - like another lockdown... interest rates shooting up... spare parts becoming unavailable - ahem!...
...Or things that will have a disastrous effect if they don’t happen - like a loan you need failing to materialise.
Then, put these in a table and rank each risk according to three criteria:
- What’s the probability of this coming to pass? For example, another lockdown might be 20%. Your debt becoming more expensive because of a rise in interest rates might be 80%.
- What would this cost you, if it happened? (Would it cost £ - or £££££?)
- To what extent is this risk in your control? (Rate it out of 10.)
Identify the top 10 risks - those which are most likely to happen, will cost you most and are least in your control.
Then, for each one, think about what you could do to make it LESS likely, LESS costly or MORE controllable...
...And act on it!
I know, risk management doesn’t feel very exciting. But as every good sports team knows, having a good defense is every bit as important as playing offense.
And when you know that we’re entering a difficult economic period, it’s simply irresponsible to neglect this part of the game.
Of course, if this is an area where you’d like support, we can help.
We help companies turning over more than $1 million manage their finances smoothly and professionally, so they can maximise their profitability.
Helping our clients plan their finances - both for good times and for bad - is central to everything we do. And we’d love to do the same for you.
To find out more about our Outsourced Finance Department service and how it might help you, call me today on 01279 647 447 or hit ‘reply’ to this email. I’ll get right back to you.
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