9 Ways to Minimize Financial Risks to Your Business

Human resources team at the center.

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Managing a business is more complex than ever. It’s a risky and challenging process that requires a lot of strategic thinking, planning, and action.

Today, 22% of independent businesses in the US fail within a year. Fifty percent of them fail within the first five years.

The number one reason? Cash flow problems.

A business needs to make more money than it spends, or it won’t survive. But if the pandemic taught us anything, it’s that there are a lot of things we can’t anticipate or control. 

If you operate a restaurant or retail establishment, for example, things like supply chain disruptions, inclement weather patterns, and labor shortages can increase your financial risk.

So what can you do?

You can use strategic HR planning to minimize financial risk and buffer the business against threats to its cash flow.

What is strategic HR planning?

Strategic HR planning is the practice of developing a plan to ensure that all personnel objectives and goals are aligned with the overall strategic objectives of the company.

This is accomplished by analyzing how personnel can best contribute to the success of the business, with an emphasis on anticipating and preparing for future challenges.

In practical terms, this involves things like:

  • assessing current workforce needs and capacity,
  • forecasting future labor demands,
  • developing job descriptions for new roles,
  • creating specific strategies for employee recruitment and retention,
  • finding ways to optimize productivity, and
  • making sure that any organizational changes are managed effectively.

Ultimately, strategic HR planning ensures that a business is nimble and well-prepared.

For example, the business should be able to take advantage of unexpected opportunities that come along, as well as quickly respond to unexpected challenges.

Not engaging in strategic HR planning, on the other hand, means leaving the business vulnerable.

Unexpected challenges for you become opportunities for your competitors, which you definitely don’t want.

Below, we explain how to use HR management and functions to minimize financial risk and ensure your business thrives for years to come.

Risk management 2

Understanding HR risk management

The human resources (HR) department is a fundamental part of every business. This department is responsible for the strength of the organizational structure.

One of its responsibilities is handling different types of risks. 

There are plenty of ways in which HR can help with risk management. HR responsibilities include but aren’t limited to:

  • Talent recruitment
  • Team member benefits
  • Supervision and management
  • Employee reimbursement
  • Occupational safety/health

It is the job of HR professionals to identify any potential liabilities in the workforce – and mitigate their effects. HR deals with everything from fair compensation and legal compliance to misconduct and discrimination in the workplace. 

Simply put, HR risk management is a process that identifies, assesses, and mitigates risks related to the employees in the organization. 

The role of HR in managing workplace risk

An organization with proper HR planning and recruitment has an advantage in protecting against financial risks.

The role of the department includes everything from managing poor employee performance and improving employee retention to the promotion of positive employee behavior. 

The HR department has to map the needs of the workforce and find the talent gaps. Then, it needs to devise strategies to attract and retain qualified employees

Without a qualified workforce, everything goes downhill. It’s a domino effect where 4 things happen:

  1. Decrease in employee productivity
  2. Decrease in customer satisfaction
  3. Loss of revenue 
  4. Poor brand image/business reputation

The role of HR technology in financial risk management

Technology has advanced to a point where HR can do its job with minimal errors and maximum success potential.

When an organization invests in advanced software and integrates it into HR processes, the department can achieve quite a lot.

Financial risk management tools can do the following – and more:

  • Set custom risk rules
  • Set thresholds for risk scoring
  • Machine-learning suggestions for risk patterns in data
  • Ensure that you meet compliance requirements

Risk management tools can collect data, evaluate it, and with it help your HR department assess and mitigate risks. 

Risk management

9 ways that HR departments can minimize financial risk

Now that we’ve discussed the importance of HR in minimizing financial risk, let’s look at what you can do about it.

Below, we lay out some of the best ways to handle recruitment and risk management, so you can start building these methods into your strategic HR planning. 

Strategic recruitment

It all starts with the recruitment process. By identifying talent gaps and finding qualified employees to fill those gaps, HR can help minimize financial risk. 

In fact, an HR department can address many financial vulnerabilities simply by attracting and onboarding people with the right skills and experience. 

On the other hand, making frequent hiring mistakes or failing to retain employees can create more financial risks for the business.

Why? Because every time you have to replace an employee, it costs thousands of dollars

Cost to replace an employee
Source

For an hourly worker, you’re looking at anywhere from $5,000 to $10,000 in administrative overhead, training time, etc. For a salaried worker, the costs get much higher. This is why it’s so vital to hire well and retain your workforce.

With the financial risks in mind, here are some ways to protect your business going forward: 

1. Identify the most critical positions

Strategic recruitment begins with identifying the roles (and skillsets) that your business absolutely couldn’t survive without.

Filling these roles with qualified candidates should be your organization’s top priority.

You’ll also want to ensure that you’ve got people on your team who understand the importance of labor law compliance and risk management.

For restaurants and retail businesses, labor violations are a huge source of financial risk, and yet they’re almost always avoidable.

2. Target and reach the right people

If you want to attract candidates who have the skills to help mitigate risks, you need to get your job postings in front of them.

Here are some steps that can help:

  • First, craft targeted job descriptions that outline the importance of labor compliance and risk management. This step is even more essential if you live in an area with Fair Workweek.
  • Second, make sure you get your job postings in front of the right audiences. This can be a very time-consuming process if done manually, but technology can greatly speed things along. For example, TimeForge’s ATS and onboarding system automatically pushes published job posts to the world’s largest job search engines and aggregators. This helps HR get postings in front of more candidates much, much faster.
  • Third, ask risk management professionals in your industry for input. (You can find them on LinkedIn.) They know the landscape and can help you understand which candidates have the best potential, especially if you’re hiring for a critical role in management.

3. Assess competencies

People will send their resumes. Your HR department will hunt for great talent. But basic qualifications such as education and experience are just a starting point.

To hire for critical positions, you need to assess the candidates’ ability to mitigate risks, too.

For example, your managers need to have a solid understanding of the risks involved in ignoring labor laws. Or if they don’t already have that understanding (because they’re new to management, for example), they need to be capable of learning and applying that knowledge pretty quickly.

HR components: talent, vision, team, goal.

4. Invest in employee retention

Employees who directly impact financial risk management should be a high priority, but the job of HR does not end there. Everyone employed by a company affects its financial risks. 

As we noted earlier, recruiting and training are expensive and can easily eat away at your business’s bottom line if you’re not careful.

On average, it costs 6 to 9 months of an employee’s salary to replace them. This doesn’t even start to cover training costs for employees who don’t possess all the skills you need. 

So it’s not just enough to hire qualified candidates, you also need to make sure you’re able to keep them after you’ve invested all that money in their training and onboarding.

To do that, you may need to re-evaluate things like:

It’s important to note that employees’ number one concern often isn’t how much they’re paid but whether they’ll be able to take time off or adjust their schedule when they need to.

Lack of schedule flexibility is one of the top reasons that employees quit their jobs, especially in restaurants and retail.

Employees and risk management

Do you have the right people in leadership positions? Skillful management of employees is more important to risk management than you might think.

A poorly managed department will not only suffer from higher rates of turnover but also lower productivity and poorer service levels.

An HR department can hire the right people, but if they aren’t managed well, this can throw a wrench in the whole plan.

Today, 82% of workers are willing to quit because of poor management. 

Bad bosses cost the business
Source

Here are some ways to make sure that employees are managed well:

5. Evaluate and support managers’ work

By regularly evaluating managers’ work, the HR department can ensure that employees are treated fairly and equally.

The HR department needs to have its doors open and welcome employees who have concerns or problems.

Regularly getting employee feedback can help the department improve the management and hire the right people to guide the team. 

Another thing HR can do is ensure that management is supported with tools to do their jobs.

For example, are managers still creating schedules by hand and collecting time off requests on paper? These tasks not only eat away at managers’ time (time better spent assisting customers), but they make it much easier for employees’ requests to fall through the cracks.

Even worse, it’s much easier to be in violation of labor laws when employee hours and schedules are being tracked manually.

There’s technology out there that can not only help managers create efficient schedules in minutes but can also track and facilitate employee requests, prevent overtime, and stop labor violations from happening in the first place.

6. Facilitate effective communication

Experienced managers in restaurants and retail know that communication is key to running a well-oiled machine. Parts that can’t communicate can’t work in sync.

HR can support the business by ensuring that employees and managers have the tools to communicate effectively.

Effective communication can help minimize financial risk by ensuring timely responses to unexpected situations.

In addition, you may need to beef up your reporting and analytics capabilities in order to make sure that HR and management have timely access to information. You can’t communicate what you don’t know.

If your business is compiling financial reports for the previous week and it takes 3-5 business days to get everything together, it means you’re constantly a week or more behind.

Which means it’s too late to minimize the risk, because the bad stuff has already happened.

Hand stopping a line of blocks from the domino effect.

Training and development

Financial risk management is a task that requires collaboration. Companies must train their employees and provide them with the knowledge and skills to manage financial risks.

That being said, here is the next tip for HR teams:

7. Invest in training programs

When a company has a clear idea of the areas that come with the highest financial risk, they can invest in training to better prepare.

For example, if your business operates in an area with predictive scheduling laws, you know that scheduling can pose certain risks if not done correctly.

These risks can include getting nickeled and dimed for violations… all the way up to million-dollar lawsuits if taken to court and found guilty of non-compliance.

In this case, it makes sense to invest in management training to reduce the financial risks.

You can supplement this training with proactive compliance, which is designed to help prevent non-compliant behavior.

Evaluation and monitoring

The journey doesn’t end by hiring the right people or telling them about financial risks.

HR needs to continually monitor the business to ensure that managers and employees are mitigating risks – not adding to them.

For this reason, you may want to put additional reporting in place to ensure continued compliance.

8. Conduct regular assessments

We don’t do training just for training’s sake, so it’s important to follow up with assessments to make sure that the training was actually successful. Did it do what it was supposed to?

Your HR team can approach evaluation in different ways, from quizzing managers on labor laws to monitoring their performance through your labor management system

However they go about it, the point is that they follow up.

9. Establish metrics to measure financial risk reduction

Last but not least, it’s important to develop metrics that fit your business’s objectives when it comes to risk management.

For instance, your metrics could include:

  • Turnover rates for important positions
  • The success of training programs
  • How long it takes to fill positions
  • Preventable overtime costs
  • Secure scheduling penalties
  • Predictability pay paid out to employees

Using these metrics, you can do periodic evaluations and continuous monitoring.

When it comes time to do strategic HR planning for the next quarter or upcoming year, you will have data that can inform your progress and planning.

How does your business handle strategic HR planning?

HR planning and recruitment play a major role in reducing financial risks.

Every company has its own approach. You can use different tools, invest different amounts, hire for different positions, and focus on certain training programs.

Regardless, the nine steps in this article can help you in your strategic HR planning and risk management.

When your business is prepared, it weather the supply chain disruptions and labor market changes, turning those unexpected situations into opportunities to get ahead of unprepared competitors.

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