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January 21, 2015

Proactive Measures Can Reduce Some Risks of Owning a Small Business

The food safety scandal that touched McDonalds in China is an event that all business owners and operators fear on a daily basis. In order to satisfy its customers and shareholders, McDonald’s took quick steps to ensure that its food in China is prepared safely. Despite these efforts to ease customer concerns, McDonalds stated that their business in China, Japan and other markets experienced a significant negative impact to results.

McDonalds estimates that this food safety issue affected about 10 percent of the Company’s world-wide revenue. Some estimates show that McDonalds’ year-to-year sales for July in the affected markets were down by over 15 percent. There is little doubt it also affected other markets.

This McDonalds event illustrates that even large established companies are susceptible to disruptions in revenue and earnings from outside risks. Empirical data suggests that the companies get inherently riskier as they slide down the size spectrum. Even without this data, it is logical to assume that smaller companies face a steeper curve while looking up at the larger companies. Smaller companies are often more dependent on a small groups of customers, more dependent on key employees and often rely on smaller groups of suppliers, just to name a few.

While companies can’t expect to eliminate all risk they can try to reduce some risks by recognizing what they are and taking some necessary steps. Some of these steps could involve expanding their customer base through targeted marketing, expanding product offerings, implementing management training programs and working with suppliers to ensure the smooth and safe delivery of products and services.

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