Small Business Risk Management Strategy

One key component of business management strategy is to identify what types of risks might endanger a company's financial position. The business owner must plan for the unexpected using the principles of risk management. The Small Business Administration (SBA) identifies six common risks considered by small business owners: property losses, business interruption losses, liability losses, key person losses, automobile losses, and employee injuries. This article briefly discusses these six types of risk.

1. Property losses. Whether your business suffers damage from a fire, storm, hurricane, terrorist act, burglary, or other event, consider what type of insurance you will need to restore the property to its present condition. You might also need to replace the contents of the building, and you may be liable for replacing employee belongings if your place of business is severely damaged.

A special type of planning concerns the replacement value of property such as computers and expensive machines. Keep records of the financial value of your property so you can buy enough insurance to protect them.

2. Business interruption losses. Here is a business interruption scenario. A business owner owns an insurance agency, and someone hacks into the computer system and steals client financial information. Clients can potentially claim losses, and you might also have to invest in a more secure computer system to protect client information in the future. This type of risk requires a contingency plan that fully answers the question of how the business owner continues to serve clients until business returns to normal.

3. Liability losses. Your business may become the defendant in a civil suit because your company's actions cause financial damages to another party. State laws often mandate minimum amounts of liability insurance. Consult with an insurance agent to ascertain if your business can benefit from increased liability coverage.

4. Key person losses. This type of loss involves a key person being unable to work in the business due to sickness, death, or leaving the company. SBA raises examples like losing a partner, a major stockholder, or a key employee. In your business, the most important thing to consider is if you become unavailable.

Do you have a plan for someone taking over operations? Have you made legal arrangements for who inherits the business and its assets if you die suddenly? Also, consider the loss of valuable employees, especially if they get recruited away by better offers. You need to have plans for replacing these people by training their replacements.

5. Automobile losses are a concern, for instance, if your company owns vehicles that can cause damage or be damaged. Another concern is if one of your employees gets hurt in a vehicle or by a vehicle on the job. This special type of insurance should include property damage and injury coverage. Buy as much insurance as you can afford with the assistance of your auto insurance company.

6. Employee injuries are typically covered by a worker's compensation plan. Consult your state's laws to determine if your business is legally mandated to carry worker's compensation insurance. If your business is not large enough, you may have other considerations like the costs of a self-insured health plan. Either way, you might feel obligated to help an employee out financially who gets hurt on the job, but you can also consult a lawyer.

Managing risk in your company includes many more potential risks, especially risks that are unique to your market. Consult the Internet for common types of risk assessments used by business owners in the same industry. Risk management is the key to protecting your company.