No matter how well you run a business and how much you invest in it, the risk is something that definitely cannot be avoided. The risk is an integral part of every business and it can never be completely avoided, which is why you need to be well prepared for it, learn how to handle it and overcome the difficulties successfully.
Risk management plan should be one of the essential plans composed by business owners, no matter the scale of the business they run. Most business owners consider risk management as a purchase of standard insurance protection without going too much into detail. However, a good risk management plan includes much more than that. Even though it can be rather complex, it is not to be skipped when starting a small business. Risk management plans differ from one business to another, but they all have some components in common, which should be defined at the very beginning in a relatively simple manner. Composing such risk management plan will help you run the business better from the very beginning, and the plan can be modified and expanded with time. These are the basic steps to take when composing the risk management plan for your small business:
Identify all possible risks – while some risks can occur in most of all types of business, the others may be specific to your area of business and your company in particular. Define all the possible risks before composing the plan, and do not forget to mention both the common and the specific ones. Some of the risks to think about are property losses, business interruption losses and liability losses. You should also account for key person losses or injury of employees, which can be specifically harmful to small businesses.
Determine your business’ vulnerability – vulnerability to risk means how probable it is that certain risks will materialize. You should divide the previously identified risks into several categories, from more probable to less probable. Then, determine how much it would cost to cover the costs if any of the risks occurs.
Make contingency plans – many small business owners see contingency planning as purchasing basic insurance for the company. While it is included, it is far from being the only component of contingency planning. It also includes installing a security system to protect the business from property losses, avoiding transactions with suspicious clients, implementing policies which value the safety of the employees and educating the employees about safety.
Purchase right types of insurance policy – although insurance is not the only part of the risk management plan, it is undoubtedly one of its essential components. Basic types of insurance you need to purchase as a small business owner are: general liability insurance, product liability insurance, professional liability insurance and commercial property insurance.
Monitor the plan and adapt when needed – once you have composed the risk management plan, it should be implemented in your small business. It should be reviewed and updated every few months at first, and later you can do it once or twice a year.