As a small business owner you have many titles including Chief Marketing Officer, Chief Financial Officer, and Chief Operator Officer. But there’s another one to add to the list: Chief Risk Officer. While risk is inherent in any business, it can be managed and mitigated with a risk management plan.
Risk management may seem quite complex, but you can implement a risk management plan for your business by following these five steps:
1)Avoid or reduce risks. Avoiding risk exposure is the best mechanism to eliminate or reduce your risk of losses. Risk avoidance involves developing strategies to avoid risk or not participating in the risky activities. For example, training employees on discrimination issues helps reduce your businesses risk of being sued by a former, current, or prospective employee.
2) Identify business risks. Identifying exposure to risks is the first step in any risk management plan. Some risks, like liability and business interruption losses are common to all business, others pertain to your specific business. Property losses, key person losses, employee injury losses, and automobile losses are other examples of types of risks your business may be exposed to. There are hundreds of small business risks, hazards, and perils that fit into these categories.
3) Prepare contingency plans. A small business that doesn’t have a back up or recovery plan is setting itself up for unnecessary risks. A business continuity plan is a road map for a business to continue operating despite adverse conditions such as natural disasters, supply shortfalls, or cash flow issues.
4) Purchase adequate insurance. Insurance is a key component of any risk management plan. It’s a way for a business owner to transfer business risk. Defending against claims and lawsuits is not only time-consuming, but costly. Small business insurance helps you to avoid these potential financial losses. General liability, product liability, commercial liability, commercial automobile, and professional liability are just a few of the types of insurance you should consider when operating a small business. With the right insurance coverage, you’ll not only have peace of mind, but be able to focus your attention on running a successful business.
5) Review, evaluate, and update plan. The first time you implement a risk management plan for your business it may not be perfect; nor is it static. Risk levels in the business environment may have changed and previous controls may no longer be adequate. Therefore, it’s crucial to monitor and update your plan regularly. Keep in mind, a sound risk management not only helps protect your business, but it will be attractive to investors later on if you decide to raise capital for expansion.