- Founders should have someone in the team to focus on the risk management side of the business. For younger startups, this can be taken up with the help and resources of your investors.
- The major objective of risk management is to create a framework that allows the company to be proactive rather than reactive while assessing the macroeconomics trends in the market.
- While assessing impact, go one layer deeper and see if your customers and the sectors that they operate in are getting affected.
Some of the systemic risks and ways to work around them are as follows -
Exchange Rates risk
- If the company is import-dependent, mitigating the forex risk can be crucial.
- Advisable to take a FX cover for the duration of the credit period received from the supplier, continue this practice at all times.
Public Market risk
- Companies should not go behind maximizing their treasury profits but instead diversify their investments.
Disruptions in Supply Chain
- Do not rely on a single source for inputs, advisable to diversify the supply chain by evaluating alternative sources.
- Even if the dependency is only on China, which has seen some resumption in manufacturing activity, it would be good to have action plans in place in case a second wave of the virus emerges.
- In case of logistics, advisable to diversify and not be dependent on a single service provider.
Over-dependency on Capital Sources
- Do not get over-leveraged by taking too much debt, specially if profitability in the near term is a challenge, it can accelerate the downward slide for the company in case of default.
- Be very conservative in estimating the NPAs from customers and suppliers, the general assumptions might not hold through in such unprecedented times. Plan working capital requirements accordingly.
- Over the long run, companies can try to get a right mix of investors that can de-risk their dependency on a particular existing investor for additional need-based financing.
- Companies are the most vulnerable to cyber attacks and consumer data leakages, as business processes get revisited to cater to remote operations and employees work from home.
- It is advisable that companies constitute a small war room to develop an action plan to avoid such scenarios and avail the services of 3rd parties if required based on the identified risk potential.