No matter your industry, running a business will always involve risks. These risks can range from external and physical risks to internal and strategic risks. Though it is impossible to eliminate all risks, there are things you can do to minimize risk and prepare for the unexpected. It is important to have the right risk management strategies in place in order to mitigate as much potential damage as possible. Otherwise, an unexpected surprise could destroy your business. Here are a few things that should be done to help manage the risks that can arise from running a business.
Identify Potential Risks
There are risks involved with every business and understanding those risks is the first step to knowing how to handle them. If you can identify potential risks and create a plan, you can minimize the impact on earnings, lost time and productivity, and negative impact on customers. You can identify risks by analyzing your specific business activities and considering any possible threats. This might include things like physical risks to your building or workspace, protections against embezzlement or fraud, workplace injury, technology risks such as malware attacks, or financial and strategic risks.
Create a Risk Assessment
Once potential risks have been identified, you need to prioritize them according to how likely they are to occur. Establish a probability scale for risk assessment as follows:
- Very likely to occur
- Have some chance of occurring
- Have small chance of occurring
- Is least likely to occur
Buy Insurance
Insurance is your best safeguard against potential risks. Most businesses carry liability insurance to insure the building itself and any operating facilities. Depending on your specific business, you will need to determine what other types of insurance you might need and how much coverage is adequate. For example, a construction company will need to carry liability insurance in case a worker gets hurt on the job while a real estate business will need to obtain errors and omissions insurance in case a client sues for legal wrongdoing. Purchasing insurance allows you to transfer your risk to an insurance company for a small cost.
Implement a Risk Prevention Program
The best way to avoid risk is through prevention. You can prevent a number of risks from occurring through employee training, background checks, safety checks, equipment maintenance, and safety training. You should also have a plan in place for things like a fire, explosion, natural disaster, or any other physical threat.
Limit High-Risk Customers
Another way to manage your business risk is to limit working with high-risk customers. For example, implement a rule that customers with poor credit have to pay upfront. You may even choose not to do business at all with customers who have a history of poor credit. Know who you are working with and do your homework ahead of time to prevent getting the rug pulled out from underneath you by a risky customer.