Every business, no matter how small it is, faces risks ranging from minor inconveniences to catastrophes. Despite this, entrepreneurs sometimes overlook the importance of business insurance in risk management efforts to fill in the gaps should the unexpected happen. From severe weather damage to defending a customer lawsuit to an information breach, there is no shortage of things that can threaten the stability of your business.
What is Risk Management for Businesses?
The International Risk Management Institute defines business risk as the process of identifying situations that could result in financial loss and taking steps to mitigate those risks. While it may sound intimidating, managing your company’s risks doesn’t have to be an overwhelming process. Below are several steps to consider.
Evaluate potential risks
Your business cannot avoid risks if you don’t understand what they are in the first place. Reviewing the following is a good place to start:
- Compliance materials
- Employee training and performance
- Human resources practices and company-sponsored wellness programs
You may find risks you never considered when completing this process. Alternatively, you may find that your company has so many safeguards in place that growth is difficult to impossible. The key is to strike a balance between safety and growing as an organization.
When you initially evaluate your company’s risks, it can be helpful to categorize each one according to whether it primarily affects customers, employees, the business structure, or the business organization. Be sure to include risks within your control, such as who your company hires, and outside your control, such as natural disasters. After taking these steps, decide who is responsible for managing each risk and assign them that duty.
Is it possible to avoid or transfer risk?
Once you have identified specific risks, determine how feasible it is to avoid each one entirely. For example, can you afford to stop doing business with slow-paying clients? Can you replace a vendor with frequent supply chain issues with another company that has more contacts?
When avoiding a risk isn’t possible, consider whether you can transfer the risk to a third party. A good example here would be creating new agreements with all vendors specifying a minimum level of insurance they must carry to continue doing business with your organization.
What are the best strategies for reducing risks?
When you cannot avoid or transfer a risk, the next best strategy is to mitigate it. If you have employees who drive work vehicles, for example, you can require them to sign a contract agreeing to always wear a seatbelt and never operate a cell phone while driving. These steps limit your company’s risk of paying workers’ compensation for an accident caused by distracted driving or injuries suffered by an unrestrained driver.
One of the most important ways to have peace of mind is to understand the role of insurance in risk management efforts. Insurance is an ideal way to protect your business from unexpected risks. Be sure you have enough coverage to keep your business afloat whenever risks turn into active threats and issues for your business. Explore different types of insurance to protect your business from the unexpected.
Think About How a Financial Loss Would Impact Your Business
No one can predict the future, but you can research the estimated financial loss for each type of risk your business faces. How long could your company survive with reduced revenue due to the need to redirect assets to managing an emergency? Since everyday expenses don’t go away during times of crisis, the answer to this question could be a shorter time than you might assume.
Compass HCM works with small business owners to help them manage risk with various insurance products. We welcome business owners in Charleston, Bluffton, Beaufort, Hilton Head, and the surrounding communities to contact us to request a time to learn more about our customized business insurance solutions.