New Year, New Risks: Risk Management Tips for Small Business

Some business owners think risk management is not important just because they are small, but in many ways, risk management can be more important for a smaller business. Small business have fewer resources to help absorb a risk than larger businesses—one substantial event could take down a small business that isn’t prepared.

If you haven’t given risk management any serious consideration, it’s still early enough in the year to re-evaluate your business and its susceptibility to risk.

Risk management is a broad topic that includes nearly every aspect of your business, so finding a risk management professional with the background and track record that suits your needs is important.

Risk Management 101

There are 2 types of risk that businesses of any size encounter.

Internal Risks

Often referred to as weaknesses, these are risks that can occur within your business.

• Personnel: A small business generally has one key person controlling most of its day-to-day operations. If that person becomes ill for an extended period, the business will suffer. In a partnership, the untimely death of a partner can throw the business into a tailspin.
• Theft: We want to trust all our employees and vendors, but the reality is that employee theft and fraud are major considerations in controlling risk. A simple thing such as timecard fraud can cost you thousands of dollars a year.
• Infrastructure: This covers all the things that your business needs to run—structure, office equipment, vehicles, inventory, general supplies, etc. A weakness in any of these areas can open the door for loss of revenue and long-term damage to the business.
• Cash Flow: Cash is the blood of any business. If your cash flow gets impeded because of a risk event, your business could be irreparably damaged and even fail.

External Risks

These risks are also called threats and are more difficult to control.

• Market Changes. The market that your business operates in is always subject to change, competitor challenges, pricing changes, and technological changes. Your business needs to prepare for these events before they happen.
• Employee Mobility. Employees may simply leave for a better opportunity, or they may leave and take some of your clients with them. In either event, you need to prepare for the upheaval. Again, a small business will feel the impact of these events much more than a larger business.

Tips to Manage Risk

The best way to help manage risk in a broad sense is to create a culture of risk management. The leaders of the organization must make it known that they value risk avoidance and that it is a real priority. Leading by example works well, especially if you have a small staff.

Regarding some of the issues mentioned here, these are more specific examples:

• Key Personnel. There are insurance plans that can protect a business in the event a key person becomes incapacitated or dies. These plans are designed to provide security for the business while it regroups.
• Employee Theft. There are policies, known as commercial crime policies, that are available to cover losses from employee theft. Instituting a culture of risk management and empowering employees to treat their job as “owners” of the business can go a long way in controlling internal theft.
• The commercial property policy covers this area; this is the basic starting point for insuring your business property. It covers all the businesses assets, whether directly owned, rented, or leased. This is usually combined with the general liability policy, which protects your business from actions brought against you because of injury. Together, they make sure your business can keep functioning.

All of these remedies help ensure a business’s cash flow remains undamaged by an event.

• Employee Mobility. To ensure your client base integrity and the intellectual property of your company, it is always advisable to have employees execute a non-compete and a non-disclosure agreement. When structured correctly, these documents will ensure that the business you worked hard to build will not be undermined if someone tries to steal your clients.

If you’re not sure where to start in terms of obtaining these policies or if you just want to make sure you have the right coverage in place, contact us for a free assessment today!