Maximising returns and minimising risk
How do you make the most amount of money from your business but with the least risk? This is the million dollar question that we all want to know the answer to. It is true that in most cases you have to speculate to accumulate. However, the level of risk in speculating varies. If you are looking to grow your business then you need to ensure you take as much risk out of the speculation as you can. Controlling the risk ratio means you contain it. For example, when investment experts look into stocks and shares movement they may apply Roger Khoury’s ‘Market Vulnerability Analysis’ to any speculative move. In this way they gain a level of control, objectivity and confidence in their analysis and ability to forecast the markets and price movement which enables them to forecast risk as it expands and contracts. Roger Khoury was a guest on my podcast The Transition Man. As business leaders we can use the same basis for our business growth and investment.
You don’t have to be in or out.
It doesn’t necessarily follow that generating higher returns means taking higher risks. You can make informed careful decisions when it comes to your business. For example when making those all important business decisions, take time to balance the aims of your business with a possible unwanted negative outcome. Ensure that you can manage any downsides that come out of any decisions you make. Like the Market Vulnerability Analysis, you can limit your downside market risk without limiting your profit potential. You have to work with the market around you and make decisions based on that. It is also important to hold your nerve when making big decisions. For example, you may decide to hire 5 more staff to grow your business. That won’t translate into more profit straight away as you have to train the staff which takes time. The business will take time. However it is important that you allow for any changes and decisions time to work.
Make balanced and informed decisions.
It is important that you do your due diligence before making big business decisions. If the market is volatile, like the one we are in now due to the pandemic then you need to ensure your decisions can withstand any market change. For example…it may be that you have to make a decision to pivot your business and move online. Consider if getting rid of your physical space to go online can mitigate the expense of the online set up costs. Ensure you balance the risk. If it is too high then it may not be wise to go down that route.
Always consider and analyse your environment.
A market reacts to the environment around it. When we are looking to make decisions which affect the running of our business we must first consider the market we are working in. What is affecting it? Is the political situation stable or will changes being talked about have a bearing on what we offer? How does your particular product fit into the market place and would that fit change if the market moved? You can forecast the weather. Wes know that certain weather fronts we measure will create clouds which will produce rain. We know that when that rain is forecast we will need an umbrella to stay dry. If the rain is forecast as heavy we can adapt our day accordingly and it is the same in business. As a business leader you must be able to operate just as well in good weather as well as bad. Therefore, forecasting is essential. Don’t focus on one aspect of your environment, consider all the factors which could cause a market shift and build them into your forecast. Rise the wave but know roughly what that wave will look like.
There is never certainty in business decision outcomes.
Just because you can forecast something doesn’t mean it is a safe bet. If the market looks like it won’t support your business aim it makes sense not to move forward with it at that time. Choose a different route or go back to the drawing board. Make sure you are over 80% sure and confident in your decision. Manage the risk. If the decision is unlikely to provide a strong return for you in the long term it may not be the right one. Be objective in your decision making, not subjective.
Don’t make panic decisions.
If you are stressed and pressured no matter how good at making decisions you are, you will probably make poor choices. It is like driving a car when you are late. You know how to drive a car, you know the rules of the road. However, you will drive the car differently when you’re under pressure, you may drive more aggressively to get there quicker, therefore the risks increase dramatically. You could get pulled over and fined or you could end up hurting someone in an accident. In business if we are under pressure we often feel forced to make decisions quickly. It is always important to be able to make decisions as a business leader but they must be informed and made clearly.
Consistency and diligent application is key to managing risk and maximizing return.
Don’t focus on making money quickly. The focus should be on a process that delivers a very specific set of results. And because of the consistency and diligent application you can outperform the market you are in and generate profit for your business.
If you want to learn more about how to make the right decisions to take your business forward then please get in touch with me here:
And remember, failing to learn is learning to fail.