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| Sunday, 28 December 2003 |
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Business |  |
| News Business Features Editorial
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Reward for taking risks by S.R.Balachandran It has to be admitted that profit is a reward for risks. The level of risk differs from business to business. Plans and budgets are prepared on forecasts. Nobody can guarantee 100 per cent accuracy when a forecast is made. For example, a sudden incident (ban or imposition of a tax) would upset your forecast. Generally you could face risks in the following areas: * Sales (quantity, selling price) * Purchases (quantity, purchasing price) * Liquidity (banks may refuse to give additional loans due to imposition of credit squeeze) * Debtors (bad debts) * Frauds (stocks, cash) You could take adequate steps to cover a major part of your risk. However, you still have to take risks if you want to make profits. This does not mean that you take blind decisions without planning, but step-by-step, you must take additional risks for better profits. If you want to learn how to swim, you must know the basic methods and you should jump into the water; not to the deep end, but to the shallow end. After acquainting yourself with swimming methods, you could go to the deep end and practise diving as well. To reduce risks, the methods applicable are: a. Export - opening Letters of Credit confirmed by reputed foreign banks b. Purchases - enter contracts for long-term supply c. Debtors - receive bank guarantees etc. d. Fraud - insurance cover Now, over and above these precautions, you may have to take risks. An economist once queried an entrepreneur about debtors risk. He accepted that when a supply was made on credit with a profit margin of 20 percent for a period of five months, the risk is there, but reducing constantly. If this credit was not given, the customer may choose another supplier. Thus, within a period of one year, the entrepreneur could earn nearly 240 per cent profits by taking this risk. Thereafter, you could even give credit up to 200 per cent. By granting credit to any group of customers at different levels and different times, the credit risk could be annually reduced, but absolute profit is ensured. You must watch your step, but this does not mean that you should stop walking. Therefore, assess the risks, take precautions, and risk the balance to earn super profits. Once your position is secured, you could take more risks. You could expand your activities accordingly. |
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