Quick show of hands please. How many of you are happy to put business risk management on the back burner? How many of you think of your insurance as ‘just another bill’?
For many, the financial reality of running a business in these challenging times means cutting costs, not adding to them. And sometimes, insurance is one of the things they figure they can do without.
While that’s understandable, it’s not advisable. Two words seem particularly relevant here: ‘false’ and ‘economy’.
If disaster strikes your business – in whatever form – not having a contingency in place (whether that’s insurance or not) could spell trouble. Many small businesses simply don’t have the capital reserves to cope.
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So how do you work out what’s important? How do you know if something's 'a risk’? And how do you know if it’s a big enough risk to spend money reducing it?
The best option is to ask an expert. Get someone who can explain it to you – it'll make all the difference.
For example, professional insurance, particularly professional indemnity insurance, is a complicated beast. When it comes to protecting your livelihood you’ll want to get it right. Speaking to an independent, specialist broker is your best bet.
In the meantime, conducting a simple risk evaluation of your own is a good starting point.
Basics of business risk management
Here's what you need to do:
Identify. Separate your business operations into what you do, where you do it, who you do it with and what you use to do it. Each one of these areas carries a financial risk of some kind (some more onerous than others). Your task is to pinpoint those risks.
It could be anything: your professional service, your employees, even an iffy backdoor lock. Think about the risks specific to your business.
Quantify. Once you’ve laid out your business and highlighted what could go wrong, you need to think about a worst-case scenario in each of those areas.
What would it cost, for example, to replace all your office equipment? How much money would you lose if it snowed so much you couldn’t open for three days? How would you cope if a client sued you for negligence? Would any of these things cripple your business (permanently or otherwise)?
Get quotes for relevant insurance, add it all up and if it comes to less than your worst-case scenario figure that’s your decision made. Simple.
Mitigate. What can you do to lessen the likelihood of a claim? Well, hope for the best and prepare for the worst isn’t a bad place to start.
For example: does your alarm work? Do your clients sign off your work? Do you have a disaster recovery plan? Thinking ahead can make all the difference and if you’re getting quotes, most insurers will take your risk awareness into account when underwriting your policy. That could mean a lower premium.
Measure. Keep one eye on the future. Where do you expect (or hope) to be in a year’s time? Will you have more employees? Or more equipment? Will you still be doing what you do now?
Keep track of changes to your business and make sure you update your insurance as you go. Getting your policy in place is step one. Step two is making sure it still covers you.
This might seem like a pain but it does make sound business sense. And when you’re done, even if you don’t get insurance to cover everything, at least you’ll know what to expect. Forewarned is forearmed after all...
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