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 What risks am I faced with in business?

 How do I manage the risks?

 What can cause my business to fail?

 How can I avoid failure?

The old adage that business is taking risks for a reward is very true. If you want a safe income stream, rather go for employment in a stable company. You know that at the end of the month you will receive your income. All the risks, including the risk that you might not get paid, are borne by the owners of the company and they should ensure that you receive what is due to you come month-end.

The minute you want to go into business, however, you must accept that you are taking a number of very serious risks in order to earn a reward. Hopefully, that reward is higher than the salary you would otherwise be earning; if this is not the case, there was really no point in venturing into business. Your life must then be a series of processes and strategies to manage the risks you face. Failure to manage these risks can lead to the failure of your business. How many people have you come across who were unsuccessful in business because:

1 they were hit badly by overheads;

2 they had a series of break-ins and thefts;

3 their staff stole from them;

4 their supplier was liquidated and they could not find alternative suppliers; or

5 they were themselves liquidated by the banks because they were unable to repay their loans?

In this book I hope to impress on you that once you get into business, your life must be spent managing risks such as these. I hope to convey the message that although the risks exist, they can be minimised and managed. I do not claim that my management strategies are the best out there, or that my suggestions are exhaustive. Business is dynamic, and there are many factors at play. You will be in a particular situation that demands that you think outside the box and come up with creative ideas to manage the specific risks you are confronted with. I will simply highlight risks and propose management strategies. You will evaluate these strategies and implement them if they suit your specific circumstances.

In the following chapters, we will discuss the dynamics of business. You will realise that in every aspect of your business there will be risks: financial risks, operational risks, legal risks and strategic risks. Doing nothing about them and wishing them away could result in the collapse of your business, which I am sure you do not want.

I spent some time doing research in the course of the development of this book, and what I found was even worse than I had anticipated. Did you know that 85% of new businesses fail in the first five years of their operation? In fact, only one new company in ten survives beyond ten years. I do not know what you think, but I find it alarming. It means that the probability of failure within five years is 85%! Experts blame this high failure rate on poor risk management, poor tactics to get the business known and accepted in the market, and poor financial management.

I went to the internet and found hundreds of companies that have experienced failure, bankruptcy and liquidation. Some of them were highly reputable companies: Automobili Lamborghini in 1978, Daewoo in 1999, Planet Hollywood in 1999 and in 2001, Arthur Andersen in 2002, Parmalat in 2003, and many others. The major problems were in the areas of sales and finances. Let us just look briefly at a few companies that have seen these risks materialising[1]:

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Harold’s Stores, Inc.

Founded in 1948, Harold’s was a Dallas-based chain of stores that sold traditional, high-end, classic-styled ladies’ and men’s clothing. The chain operated 43 stores in 19 mid-western and south-eastern states in the United States, usually located in upper-class areas and shopping centres. Prior to its bankruptcy filing, the company employed 624 people.

When the company was granted bankruptcy liquidation on 10 November 2008, it claimed that “increased competition and a weak economy have left us no choice but to cease operations”.

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Oasis Hong Kong Airlines Limited

This is a now defunct long-haul, low-cost airline that was based in Hong Kong. It operated scheduled services to London’s Gatwick Airport and Vancouver International Airport from its hub, Hong Kong International Airport.

Oasis was one of a growing number of long-haul passenger airlines that adopted a budget airline model pioneered by the now defunct Laker Airways Skytrain service in the 1970s. Oasis was voted “World’s Leading New Airline” at the Annual World Travel Awards 2007.

Much of the original success of Oasis Hong Kong was due to the airline’s widely advertised minimum fares. However, fares later became much less competitive.

On 9 April 2008, Oasis Hong Kong announced that it had ceased operations, and a provisional liquidator, KPMG China, had been appointed to oversee the liquidation of the company. On 8 July 2008 it was announced that unsecured creditors of the collapsed company, including ticket holders, would eventually receive no more than 10% of what they were owed, according to KPMG.

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Nationwide Airlines

Most readers probably remember the well-publicised story of this South African company’s problems and eventual collapse. Before halting its operations in 2008, Nationwide Airlines operated scheduled domestic and international services from its main base at OR Tambo International Airport, Johannesburg. It was privately owned and had 800 employees (at March 2007).

Founded in 1995 by Chief Executive Vernon Bricknell, the airline began operating charter services within Africa for the United Nations and the World Food Programme, as well as ad hoc passenger and cargo charters. Nationwide Airlines was one of four companies within the group, along with Nationwide Air Charter, Nationwide Aircraft Maintenance and Nationwide Aircraft Support, and started domestic scheduled operations in December 1995. In 2003, Nationwide inaugurated an intercontinental service with wide-body aircraft. In February 2005, the airline began updating its fleet by introducing its first Boeing 737-500, becoming the only operator of the -500 type in South Africa.

In March 2008, Nationwide was recognised as the most punctual scheduled airline in 2007 between London and Johannesburg for the second consecutive year, according to UK Civil Aviation Authority statistics.

In 2007, the airline experienced a number of problems and was grounded for a while for non-compliance with South African Civil Aviation regulations. In January 2008 Nationwide resumed operations and attained a gradual recovery of the business. However, in the months of March and April they were faced with a 30% increase in fuel costs coupled with a decrease in passenger loads. Nationwide’s cash flow became critical, and as a result, the airline decided to voluntarily cease all flight operations until further notice. Operations were halted on 29 April 2008.

I hope you can identify, just from these few examples, some of the risks you will be faced with in business. Most of them may not cause your business to collapse, as was the case with these big companies, but they may result in significant losses of revenue and profits, loss of market share which will take you a long time to recover from, and loss of reputation. These risks must be managed.

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