5 Risk Management Tips for Small Businesses

Risk is something that’s always present in business. Some of us are open to significant risk, while others would classify themselves as risk-averse and spend considerable energy and effort mitigating the possibility of negative outcomes. There’s no cookie-cutter approach to risk that works for every organization, but there are sound risk management principles that, when implemented, prove helpful for many small businesses.

Top Risk Management Tips and Strategies

“Risk. It’s at the core of just about every decision you make at your facility: how you interpret it; how you measure it; how you manage it; and most importantly, how you mitigate it,” PinnacleART explains. “Effective risk management helps you prioritize how you spend time, money, and materials, and is inarguably one of the most crucial elements behind improving safety and preventing asset failure.”

If your risk management strategy is shallow or nonexistent, your business could be in trouble. Here are some helpful tips to get things on track:

Identify Your Greatest Risks

Begin your risk analysis by making a list of what you perceive to be the greatest risks facing your company. This list may include both internal and external factors, as well as controllable and uncontrollable elements. You know your business best and have a good idea of what you’re facing.

It’s also helpful to meet with team members, business partners, and consultants to pick their brains. They have unique perspectives and will be able to highlight other potential risks your company faces.

Review Your Legal Structure

For small businesses, it’s imperative that the right legal structure is in place to safeguard against unnecessary legal and financial risk. There are a variety of entities to choose from – including sole proprietorships, partnerships, and LLCs. Carefully consider the ramifications of each so that you can make an intelligent, forward-thinking choice.

Purchase Adequate Insurance

Insurance isn’t a fun product to purchase, but it’s a necessary one – particularly when it comes to risk. The right insurance policies can prevent minor problems from becoming catastrophic issues in the life of your business. Depending on the type of business you run and the specific risks you face, you may insulate your organization with any number of policies. Errors and omission insurance is one of the most useful to have.

As Insureon explains, “Errors and omissions insurance, also known as E&O insurance or professional liability insurance, can pay to defend your business against a variety of claims from disgruntled clients, including charges that you were: Professionally negligent; Provided incomplete or incorrect work; Made mistakes or oversights; Failed to perform professional duties.”

Review and Optimize Contracts

Legal agreements are both important and binding. Safeguard your business against unnecessary risk by regularly reviewing and optimizing your contracts to include as many protections as possible. Whether it’s a sales agreement with a distributor or an employment contract with a new hire, you can’t afford to leave your business exposed as a result of poorly drafted legal documents.

Educate and Prepare Employees

When it comes to risk, cybersecurity and data breaches are some of the biggest issues facing today’s businesses. And while most business leaders assume that these threats come from foreign hackers and sophisticated, underground criminal organizations, the reality is much different. Employee negligence is the main cause of data breaches, with 47 percent of small business owners pinning the blame for a past breach on human error.

This just goes to show the importance of employees being on the same page with management. Whether it’s data security, customer service, sales, marketing, finances, or any issue in between, employees must be trained to understand the risks facing the company (as well as how to avoid them).

Set Your Business Up for Success

Risk is a touchy topic. In and of itself, there’s nothing wrong with risk. It’s merely a situation in which you’re exposed to the possibility of danger. Many times, risky situations lead to nothing. Other times they cause great harm. As a business leader, you have to decide how much risk you’re willing to expose your business to (as well as which risks you’re uncomfortable facing). The more time you spend thinking about this subject, the fewer surprises there will be.

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