Small Business Risk Management Insights
Small businesses can benefit in several ways from implementing effective risk management protocols.
May 9, 2023
How to Manage Business Risks
A vital aspect of running a small business is managing its associated risks. No operations are immune to internal or external threats. A risk management plan involves implementing various techniques that can help mitigate or prevent loss.
A company can organize its risk management plan in multiple ways, but steps commonly consist of identifying, assessing, and managing risks. Businesses must also continually monitor and review their policies and procedures to ensure their courses of action remain applicable and relevant.
Types of Small Business Risks
Small businesses may encounter the following types of risks:
A business may lose money, fail to recoup its initial investment or not maintain the cash flow necessary to
A business’s decision-making or overall plan may result in loss or a failure to meet objectives.
Many issues and events could impact a business’s day-to-day functions, operations or business activities.
Occurrences can threaten a company’s good name, brand or standing with the public or its clients.
Events can harm individuals, property or the environment.
Cybersecurity and fraud risk.
Issues may arise through shortcomings in a small business’s IT or security systems.
Compliance and legal risk.
Losses may arise from a company’s failure to adhere to federal, state or industry regulations.
Small Business Risk Management Process
While examples of risks are numerous, a comprehensive risk management plan is vital to overcoming them. A plan generally includes the following steps:
Identify the risk.
By carefully examining their operations, businesses will likely discover several exposures that could create a loss.
Assess the risk.
After identifying threats, businesses can analyze the probability of the risks occurring and their potential severity.
Manage the risk.
Following the risk assessment, a business needs to determine how it will address the risks. Options include the following:
- Avoid. Eliminate the risk.
- Modify. Mitigate the risk’s impact or lessen the likelihood of it occurring.
- Transfer. Shift the risk to a third-party (e.g., an insurance company) through a contract.
- Retain. Accept the risk (or a portion of it) when deemed acceptable (e.g., it has a low likelihood of occurring or would have a minimal impact).
Monitor and review the plan.
A crucial part of the risk management process involves continued monitoring and reviewing of strategies to help prepare for evolving or new hazards.
Small Business Risk Management Benefits
Small businesses can benefit in several ways from implementing effective risk management protocols. Not only do these protocols mitigate or eliminate potential risks, but they may also lower insurance premiums, as insurers may note how they reduce the business’s likelihood of filing an insurance claim. Insurers may also offer resources to help a business strengthen its risk management practices.
It is never too early to begin risk management planning. Contact Hylant today with any questions or for more information.
The above information does not constitute advice. Always contact your insurance broker or trusted advisor for insurance-related questions.