Owning your own business comes with risk, as you are surely aware. Given that reality, it’s important for every small business owner to have a risk management strategy in place from day one. Having the right plan will help protect your business in case of disaster and should help you to keep your doors open even during difficult times. You will need to take the time to identify possible risks to your business. Then you can work out the odds of each event and the potential cost to you in order to set up a contingency plan to protect your business. Here we will look at how to reduce business risk by conducting a small business risk assessment and acting accordingly.
The first step in managing your business risk is understanding it.
One major reason why small businesses close their doors is due to poor risk assessment, but knowing how to properly manage business risk will help you become among the 44% of businesses that remain in business longer than 4 years. There are risks that are common to all small businesses, and as a small business owner, you are also aware of the specific risks to your own business. While a broken wrist might be a huge problem for a plumber or photographer, it’s possible that a yoga instructor could easily work around it for a few weeks. In addition, there may be risks for a new business that differ to those for an established business. It’s important to consider both common small business risks and those that are unique to your business when compiling all the factors you need to consider.
Here’s a list of examples of a few business risks that you should consider:
This could be caused by theft or by physical damage, such as items breaking, weather damage or burst pipes.
Business Interruption Loss
This means that your business would no longer be able to sell its product or offer its services. For example, if there is a fire, and you have property damage, you also may not be able to manufacture your product for sale.
Key Person Loss
This includes if a key person in the company becomes sick, is injured or dies. The loss of this person could significantly impact a small business.
This covers any legal liability to property or people that your business is responsible for.
This may result in damage to people, recall of a physical product or public relations issues.
This covers injuries to an employee while at work.
Tips to Reduce Risk
Once a small business risk assessment has been completed, it is important to put plans in place to reduce that risk. Here are some tips to consider to reduce your business’ risk:
- Buy and use security systems to guard the premises and physical property;
- Ensure proper employee training and information sharing to avoid all knowledge resting with one person; for entrepreneurs without employees, this could include writing everything down;
- Implement employee awareness programs and quality control guidelines to help protect employees from injury;
- Ensure that you have adequate building protection measures such as fire extinguishers, sprinkler systems, safety glass and more;
- Review your business risk management plan regularly and make updates as necessary.
One of the main reasons why business risk assessment initiatives fail is that businesses fail to ensure that the assessment is an ongoing process. In other words, make sure to keep reviewing your management of risk to make sure it remains relevant and up-to-date. One easy way to do that is to set reminders for January 1, April 1, July 1 and October 1 to review.
Reduce Risk with Insurance
An integral part of business risk management is having insurance. There is a wide range of insurance options that help to reduce certain risks and having insurance is a must for any business that is serious about growing. Start off with general liability insurance to protect your business in the case of property damage, injury to a third party, medical expenses, legal expenses and more.
Knowing that small business risks are part of running a company is the first step in managing and mitigating those risks. As a business owner, you are in the perfect position to identify and assess potential risks. From there, you can manage, monitor and review your procedures to address them. With this in place, you will be able to help your business grow smoothly and safely.