About 50 percent of small businesses will fail within a decade.
What does this tell you about starting a new business? It’s risky business.
So many businesses fail not because they’re offering an inferior product or service, but just because of poor risk management. In business, you must be able to identify the risks you face and find ways to manage or mitigate them; otherwise, there’s only one path for you: failure.
In this article, our focus is on risk management for small businesses. Continue reading for a helpful guide on how to manage risk.
Identify Your Risks
You cannot manage what you don’t know exists.
This’s the basic principle to follow in risk management.
Start by identifying all the risks your business faces. Because businesses are different, you must do a risk audit to establish the risks that are unique to your business.
Generally, though, every business will face a myriad of risks, ranging from natural and manmade disasters to regulatory and economic risks.
For example, let’s say you run a coffee shop with an online website: Here’s a list of the risks you face:
Property damage (fire, floods, burglary)
When you know your risks, you can then start devising a plan to contain them.
Hire a Risk Manager
If you aren’t a risk specialist, it’s almost impossible to zero in on all the challenges your business faces. This is why it’s super important to hire a risk manager.
With a risk manager on your team, you’ll rest assured that all your risks will be identified. The manager will also design and implement the right risk management strategies.
If you’re on a shoestring budget and unable to afford a risk manager, it’s possible to outsource the task to a risk management firm.
Purchasing insurance is the most effective way to mitigate the consequences of risks you can’t fully control.
For example, let’s say you’re running the risk of on-premises accidents, which is what every physical store that lets in customers faces.
If a customer falls on your premises and injures themselves, they can sue your business for compensation. An ideal way to manage this risk is to ensure the floor and staircases are in good condition at all times. However, this doesn’t fully mitigate the risk.
When you have adequate general liability insurance, or premises liability insurance to be more specific, your coverage provider will compensate you when a compensation claim is brought against your business.
There’s an insurance policy for almost every type of risk a business faces: property insurance for property damage, cyber insurance for online attacks, workers’ compensation insurance for workplace injuries…
If you’re worried that the cost of insurance will spiral out of control, you can explore captive insurance, which is cheaper.
Know How to Manage Risk in Business
Risk management isn’t an easy task, especially if your business is highly dynamic with many moving parts. However, it’s possible. With this guide on how to manage risk, you now know the steps you can take to control your risks.
Need more risk management tips for small businesses? Keep reading our blog!