When you have a small business, you have a lot of hats to wear. Here’s another one: Risk Manager.
Risk management is a process that identifies, assesses and provides a plan to mitigate risks that affect a business. Despite its importance to the health of a company, managing for risk is one of the most neglected aspects of small businesses.
Types of Common Business Risks
The most common risk areas for small business include:
- Operations and administration
- Compliance with laws and regulations
- Financial transactions and systems
- Strategies for reaching business objectives
- External events, like the economy or weather, that a business has little or no control over
- Reputation of the company
Developing Small Business Risk Management Plans
Early on, a lot of business owners with an entrepreneurial spirit rely on their instincts to manage risk. But a successful small business needs a plan.
1. Risky Business: Identify Risks
Sit down with others in staff and identify the kinds of risk your business is sensitive to.
2. What If?: Assess the Risks
Explore the possibilities and consequences of what would happen if those risks turned into realities. Determine how likely they are to occur. What if there’s a flood? What if a key employee leaves or is unable to work due to injury? What if power is lost? What if your computers are hacked? To help visualize these risks at a glance you can create a risk assessment matrix in Excel.
3. Now What?: Manage the Risks
There are steps you can take to manage risks. Ask:
- Can the risk be avoided? Identify what can be done differently in order to avoid it. Look for ways you can change something to avoid the risk.
- Can we reduce the risk’s likelihood and consequences? If it can’t be avoided, think about how the risk can have less of an impact. The answer might involve compliance, keeping records more secure, having practice run-throughs or maintenance.
- Can you transfer some or all of the risk? Transferring to another party is the key here. This could involve contracting out, purchasing the right insurance coverage or entering into a partnership.
- Should we just accept the risk? Sometimes you have to face the fact that a risk cannot go away.
4. Eagle Eye: Observe and Review
Keep an eye on the plan and make sure the measures you’ve put into place are effective or adequate. Look at the plan closely at least once a year and alter as needed. You might need to improve a procedure or create a new position to hire for. Check with your business insurance provider to see if there are holes in your coverage that need to be filled.