The key to minimizing risks is to first understand them
As the owner of a small to mid-sized business, you may believe your risks are limited – that only large companies need to be concerned about addressing potential risk.
But businesses of every size face risks, and failing to identify and control them could put your business at serious risk. According to the Federal Emergency Management Agency, 40 percent of businesses do not reopen after a disaster of some sort, and another 25percent fail within a year of the incident. And according to the U.S. Small Business Administration, more than 90 percent fail within two years.
So how can you keep your business from becoming just another statistic?
Start by identifying the worst possible event that could happen to your business, and what the consequences of that would be. What if your main supplier went out of business, or your biggest customer went bankrupt? What if a tornado destroyed your business’s physical property or a loss of power resulted in days or weeks of no electricity – and no internet access?
Once you’ve identified risks, determine how likely these events are to occur, and what the consequences of each would be. You may determine that some are minor, or very unlikely to occur, while others should be immediately addressed.
The next step is to determine how you will address each identified risk. You can:
- Avoid the risk altogether by eliminating risky activities, or changing processes so that the risk no longer exists.
- Reduce the risk by implementing additional processes, increasing the amount of equipment maintenance, hiring a risk manager or creating safety programs to make employees aware of risks and how to reduce them.
- Transfer risk. While most businesses know they need common coverages such as property and liability, they may be less familiar with coverages such as errors and omissions, business income/loss, business loss of use, equipment breakdown and employee use of vehicle. In addition, businesses can purchase insurance coverage to transfer risk to a third party, or outsource risky activities to an outside vendor. Work with your insurance agent to properly assess your risk and then determine which actions and coverages are appropriate to protect your business.
- Accept the risk. In some cases, you simply can’t avoid a particular exposure, or the likelihood of an identified risk occurring is too small – or too expensive – to address. In these instances, it is important to create a business continuity plan to help your business recover should this unlikely event occur.
Once you have a plan in place, don’t just put it on a shelf and forget it. Risks change over time, as do potential solutions for addressing them. By regularly reviewing your risk, and having ongoing conversations with your employee and your insurance agent, you can ensure that, should the worst happen, you are prepared to meet the challenge – and have a plan in place that will help you recover, not go out of business.