The Danger Zone - Dealing With Unexpected Business Risks
In the wake of the unexpected closure of, and soon to be demolished Belchers Corner building, my former home, the experience has prompted me to put together this blog on risk management. Every day small businesses are exposed to varying types of risks and many wouldn’t even know.
In order to ensure that businesses are prepared for the impact of any risk to their business it is important that they develop a framework for identifying risks, understand their causes and document strategies to either eliminate or mitigate these risks.
What is risk?
In a business sense, risk is a situation involving exposure to danger. What kind of danger are we referring to? At a high level, risks can be split into various categories and sub-categories such as:
o Global market sentiment
o Minimum wage changes
o Intellectual property protection
o Cash flow management
o Interest rates
o Systems and processes
o Quality management
Each category has its own unique factors that interplay with a business. Some can be controlled by business owners, some cannot. The primary issue is to identify risk categories and measure each risk for the likelihood of an incident occurring. The next step is to determine the cost of an incident to the business. Small risks may not require any intervention if they pose little consequence or disruption to the business. Risks that pose substantial disruption or large costs to a business need further consideration. At this point a risk management plan is required. This document should form a part of your overall business plan and include as many areas of risk as possible.
An example of a risk management plan is a restaurant with a refrigeration system which contains thousands of dollars of food supplies. An identified risk may be electrical disruption to the refrigerators. Installing an automatic generator to restore power in emergency situations may mitigate or eliminate the risk of power outages and losses caused by spoiled food.
Another example may be an employee who has highly technical knowledge in a specific area or has been with the business for many years. Whould that person leaving reduce the knowledge base of the firm quite substantially? A risk mitigation strategy may be to create a knowledge base system. The employee can then document standard workflows to share and transfer knowledge to other employees of the business.
For insurable events it is always advised that you seek advice from your insurance broker against these possible events.
It is generally accepted that most businesses fail to adequately cover themselves with basic insurance, and fewer again take the time to understand the risks that their businesses are exposed to. If you feel you need some assistance with this task please call us to ensure that your business is ready should disaster strike like it did to so many businesses at Belcher’s Corner!