For a period of nine months from April 2022 to January 2023, Silicon Valley Bank operated without a Chief Risk Officer (CRO). A key lesson here is that risk assessment and management cannot be overlooked in terms of overall importance to an organization: Had there been someone – or several someones – charged with the crucial, focused task of monitoring and counseling SVB executives on risk, perhaps a fallout never happens.
But every business – big or small, bank or non-bank – can benefit from risk management. According to Forbes Small Business Statistics, it is estimated that 99.9 percent of all businesses across the U.S. are small businesses, and 80 percent of small businesses have no employees (and are therefore single-owner businesses). And of that remaining 20 percent, only four percent have 20 or more employees.
So what does this mean? Well, for one, it means that we have to take a second to recognize and appreciate all of the time and hard work that goes into running a small business, especially since most of them have little to no employees. And it also means that – while these small business owners are busy investing nearly all of their time and energy into running the day-to-day operations of their business – they probably don’t have much time to dedicate to risk management and analysis.
And this is where you – the financial advisor, the relationship manager, the banker – have a chance to be their hero. Your small business owner not only wants to survive, they want to thrive. So how can you address the risk management challenges they are facing, and what can you do to effectively manage those gaps and help assure them that their business – and relationship with you – is safe and worthwhile?
Types of Risk
In order to understand how you can help address business owner challenges in terms of risk, it is important to understand the six common types of risk they face and are often left to figure out themselves:
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- Financial Risk – This can include initial startup investment, cash flow, and economic conditions.
- Strategic Risk – Delves into business life cycles, controlling growth, business legal structure, target market, sales and marketing strategy, production strategy, etc.
- Reputational Risk – This is all about quality control and brand reputation (which is exacerbated by social media, making it simultaneously easier and harder to manage your reputation).
- Liability Risk – Accounts for employee and customer injuries, property damage, contractual obligations, high-risk customers, and insurance.
- Business Interruption Risk – Factors internal and external disruptions to business operations, such as natural disaster, pandemic, supply chain issues, and continuity plans.
- Security Risk – Encompasses IT systems failures, cyber attacks by hackers, and physical security concerns.
As you can see, this is a lot for one person to deal with, especially when you consider everything else the business owner and their (more than likely) small team is faced with. And this is where you come in.
Becoming a Small Business Hero
As I discussed before, most small business owners are on their own, period – which means they’re especially on their own when it comes to risk assessment. They don’t have a board of directors, a risk management committee, a CRO, or anything of the like – because they are all of those roles! And this is your opportunity to be the trusted advisor, and the hero, they so desperately need.
Unfortunately, there are many reasons why a financial advisor, relationship manager, banker, etc. is a bit reluctant to talk about “subject matter risk”: Maybe they don’t want to “upset the apple cart” and risk losing a customer. Maybe they just aren’t all that incentivized to do so because their sales goals outweigh their risk goals. And, maybe, they’re simply not knowledgeable enough and lack the proper tools to be able to articulate risk in the best way to their customers.
Whatever the reason, remember this: If you fail to discuss risk with a business client, a very real alternative is that the business goes under due to failure of risk management, and then your biggest fear becomes your reality – you lose a customer, inherit a bad loan, or worse. So if discussing risk makes you anxious, it’s up to you to address that gap in knowledge to give you the confidence to talk risk with your small business customers.
Risk Management and Industry Intelligence
If you use tools like Vertical IQ to help you become more comfortable addressing risks topics more proactively – rather than reactively – you’re not only presenting a chance to become that small business owner’s hero by essentially saving their business, but you’re also being more strategic as an advisor instead of being haphazard. You must methodically dedicate meeting time to discuss risk and gain their trust in order to build a relationship with them to last the tests of time.
So where do you begin? A deep dive into industry risks is a great place to start – and this is where Vertical IQ can lend a helping hand.
We offer various chapters within each of our Industry Profiles that can provide you with crucial insight on risk analysis, with the most direct of these chapters being the Credit Underwriting and Risk chapter. It provides you with industry and company risk topics as well as risk ratings and a financial comparison toolkit for every industry. You can also utilize the Working Capital Summary to assess cash management challenges.
Other useful chapters within our Industry Profiles include Financial Benchmarks, Industry Forecast, Industry Trends, Industry Structure, and Call Prep Questions. Learn more about the industries we cover and how our platform can help you assess risk.
The bottom line
The goal as a trusted advisor: to be the person your customer can count on to know their business is in safe, reliable hands. And sometimes, those difficult conversations about risk can end up spelling the difference between a small business going under and thriving – giving you the chance to save the day!
>> Want to learn how prioritizing small business is a key component of growth and success? Join us for our upcoming webinar, “Reenergize Your Focus on Small Business Banking as a High-Priority Growth Segment,” on Wednesday, April 26th! Register now.
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