Small Business Guide to Managing Risks

| February 16, 2023

An important part of running a small business is planning for any bumps in the road along the way. A risk management plan can help mitigate or prevent loss that allow you to identify, assess and manage risks. Businesses also need to continually monitor and review their policies and procedures to ensure their courses of action remain applicable and relevant.

Types of Risks a Business Might Face:

  • Financial risk involves the possibility that a business may lose money, fail to recoup its initial investment or not maintain the cash flow necessary to continue operations.
  • Strategic risk refers to how a business’s decision-making or overall plan may result in loss or a failure to meet objectives.
  • Operational risk relates to anything that could impact a business’s day-to-day functions, operations or business activities.
  • Reputational risk involves threats to a company’s good name, brand or standing with the public or its clients.  
  • Hazard risk refers to events that can harm individuals, property or the environment.
  • Cybersecurity and fraud risks relate to events that may occur through shortcomings in a small business’s IT or security systems.
  • Compliance and legal risk refers to the losses that may arise from a company’s failure to adhere to federal, state or industry regulations.

Risk Management Process:

While there are many examples of risks a business might face, a comprehensive risk management plan is one way to overcoming them. A plan generally includes the following steps:

  • Identify the risk by carefully examining your company's operations to discover any exposures that potentially could create a loss.
  • Assess the risk and analyze the probability of the risks occurring and their potential severity.
  • Manage the risk by determining how a business will address the risk. Some options could include: avoiding/eliminating the risk altogether, mitigating the risk's impact or likelihood of it occurring, shifting the risk to a third party such as an insurance company, or accepting a certain amount of risk as acceptable.
  • Monitor and review the plan on an ongoing basis to help prepare for evolving or new hazards. 

Risk Management Benefits:

Small businesses can receive several benefits 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 us today with any questions or for more information.