While most business owners know that risk is a part of business, small businesses tend to overlook risk management. This leaves them open to negative impacts, loss, and business failure. Coming up with a small business risk management plan can help to mitigate risk and protect profitability.
What is Risk Management?
Risk management is a process for identifying risk, measuring its potential impacts, and coming up with ways to eliminate or minimize sources of risk. A small business risk management plan is a written policy that takes into account as many of the sources of risk to the business as possible. It may include evacuation plans for fires, floods, and other natural disasters, as well as ways to minimize risk from financial decisions, client default on payments, and other business concerns. Small businesses can be particularly vulnerable to risk because of their small sizes and low operating budgets.
Identifying Risks
The best place to begin a small business risk management plan is by identifying risks associated with doing business. These risks are generally business or industry-specific. The first step is to go through the business plan and look at every area of the business. Make a list of areas where risk is possible and brainstorm negative events that could happen, from the likely to the very unlikely. Approximating how likely these events are to happen will help in deciding which risks need to be addressed first. The next step is coming up with a way to manage the risks.
Mitigating Risk
There are four basic categories of strategies for managing risk. The potential negative effects of a risk can be reduced, for instance by instituting a back-up plan for computer data. A risk can be managed by transferring the risk to another party, usually an insurance company. This strategy works for risks that are fairly common, like fire or theft. Accepting the consequences of a risk and budgeting for it can work in areas where the negative impact is likely to be fairly small. Finally, risk can be avoided entirely by eliminating a high-risk area of business or outsourcing it.
Managing Risk
Once the organization has come up with a small business management plan, it is time to implement it. While large companies often have risk management departments to handle risk management, a small business most likely has one person or a small committee in charge of compliance and monitoring. Risk management is an ongoing process in any business, as it is important to keep tabs on how effective the plan is and if it needs updates. In addition, employees must be trained in risk management procedures, particularly in safety and disaster readiness.
How to Get Help
Small business risk management may be more complicated than risk management for larger companies, if only because a small business may not be able to hire a person whose only job is risk management. Small business owners may want to hire an outside consultant or risk evaluator to help with the identification of risks and with coming up with a risk management plan. These consultants may be fire marshals or other compliance officers. They will also need to comply with OSHA and other legal regulations, so it’s important to do research before coming up with a plan.
Small business risk management planning is often overlooked as a part of beginning a business, but it is crucial to the smooth running of any business. Make sure that your small business has a risk management plan before it opens its doors!