In general, most of us agree that a back-up plan is worthwhile. It’s universally accepted as fact that most entrepreneurs are comfortable taking risks. But many business owners focus more on the ultimate risk of failure on a macro-level rather than the smaller—but no less devastating—everyday risks. Those typically include property damage, public relation issues, natural disasters, and other risks that many unknowingly accept when owning a business. But once you’re in, they are a part of the business. The good news is that the risks are manageable, avoidable, and sometimes even insurable if you plan ahead. So let’s start planning.
Steps To Risk Management
When preparing to create a risk management policy for a business, the owner must first lay the foundation for risk management by:
1. Assessing the business’ risks.
A business owner must completely understand all of the risks that the business faces before the owner can properly plan for them. The business owner should consider risks relative to property ownership and damage, liabilities and risks brought on by employee negligence and those introduced by social media and the Internet.
2. Determine which risks can be covered by insurance.
Business owners may purchase commercial property, liability, cyber risk insurance, and more. Any risk that can be covered by insurance typically should be.
3. Estimate appropriate insurance limits based on potential financial risk.
A business owner’s ability to be protected from risk through insurance is only helpful when the individual has an idea of the maximum financial risk. This step requires the business owner understanding liability exposure, business property value, and the potential for workers’ compensation damages.
Create An Ongoing Policy Of Risk Management And Risk Mitigation
Understanding risks and insuring against them is a basic step that all business owners can make, but it’s even better to help manage risks by developing policies that mitigate them.
1. Create specific risk mitigation policies.
By using each of the risks the business owner found in the first exercise, the owner can then think about the many ways that the owner and the staff conduct business and how these methods can negatively impact the risks. Then, policies can be developed for each individual risk that will lessen the overall exposure.
2. Monitor compliance and measure results.
A business owner must monitor employee compliance with written risk management policies and measure their effectiveness. Of course, if the effectiveness is limited, then it’s time to re-visit the drawing board.
3. Update insurance and policies annually.
Insurance must be updated annually to reflect increased or decreased risk and changes in the value of property or financial exposure.
It can be overwhelming for business owners to assess all of the risks their company faces. That’s why CRI’s CPAs and business advisors are ready to help you assess your risk and create a risk management policy that protects your business and bottom line. That way, if the worst case scenario does occur, you have a plan to stay afloat.