Let’s cut to the chase and state the obvious – business risk management and business risk mitigation are essential for protecting your business in the event that things don’t go according to plan. Because try as you might to eliminate it, risk will always exist.
Adopting risk minimising strategies, including a small business insurance policy, is simply part of the game when you own or manage a business. All businesses are exposed to a level of risk, be it operational risk, financial risk, reputational risk, environmental factors, or compliance risk, to name a few.
That’s because risk is not a simple ‘yes’ or ‘no’ equation, nor can it be completely eliminated. As such, a plan for how to manage the risks to your business is certainly worth factoring into your overall business management strategy.
Types of business risks
Business risk management strategies are important because there are various types of risks a business may be exposed to. Risk profiles vary from business to business and industry to industry, but the risks are commonly grouped into one of seven categories, as follows:
- Financial: The systems, financial transactions, and structure of your business.
- Reputational: The character and goodwill of your business.
- Compliance: Complying with regulations, laws, codes, and standards.
- Strategic: Decisions that concern the objectives of your business.
- Operational: Operational and administrative procedures.
- Environmental: External factors that your business has minimal control over.
- Miscellaneous: Health and safety, project, equipment, security, technology, stakeholder management, and service delivery.
Risk management strategies for your business
Business risk management strategies are especially important for small business owners because small businesses may not have the resources to fully recover if things take a turn for the worst in their business. Forewarned is forearmed, so here are five risk management strategies to consider including as part of your approach to business risk management in your small business.
1. Order your risks by priority
Start by organising the risks to your business by priority. Assess each main risk to your business and group them into the following four categories:
- Very likely to occur.
- Some chance of occurring.
- Small chance of occurring.
- Very little chance of occurring.
Common sense dictates that the risks most likely to occur are the risks you should focus on first. Make a plan for how your business can actively prevent or at least minimise these risks from happening. You also need to weigh up the potential financial damage tied to each risk; a certain risk may be less likely to happen, but more financially harmful to your business than risks that are more likely to happen. You may consider bumping these risks up your priority list.
2. Target controlled growth
Growing your small business is never a bad thing – unless it grows so fast that you struggle to keep up the pace in terms of resources, capacity, capabilities, and service level. Rampant growth can cause small businesses to risk coming undone from the inside.
In an effort to keep up the pace, you may unintentionally cut corners, lose the close camaraderie you had with your hardworking staff, and be too busy to provide the personal touch and level of service you once provided to your clients. So avoid the risky pitfalls that can come with growing your business too big too fast.
3. Adopt a quality assurance program
Great reputations are worth their weight in gold – and then some – for small business owners. When you’re not yet a household name or an industry leader, the only way your potential customers can judge you is by what they see, hear, or read about your business.
Implementing a company-wide quality assurance program as part of your risk management strategy can help your business maintain its great reputation by reducing the risk of negative opinions emerging about the capabilities and expertise of your operation. To reduce this risk, test all of your products and services in order to assure the highest quality, and seek feedback from your core customers periodically – perhaps in the form of quarterly customer surveys.
4. Be picky with your customers
Depending on the size and state of play of your small business, this one may only be a ‘nice to have’ for now. But, if your small business is in a position to pick and choose the clients it does business with, then a smart risk management strategy is to only do business with businesses that are of good standing.
Partnering with clients that have bad reputations – or bad credit ratings – can easily expose your business to unnecessary risk, such as not getting paid for the work you do for them. Choosing to work with such clients might not align with your business risk mitigation strategy. If your business is not in a position to turn away new business from certain clients with poor credit ratings, then it might be worth limiting your risk exposure here by asking the client to pay in advance.
5. Review your small business insurance
It would be remiss of us to not mention business insurance in a blog about how small business owners can implement business risk mitigation initiatives to protect their business. Small business insurance plays an important role in protecting small businesses in many industries.
A popular insurance choice for small business owners who partner with BizCover for their small business insurance is our Business Insurance Pack option, which enables business owners to customise their business insurance to their specific needs. Some of the main types of coverages that customers include in their include in their Business Insurance Pack include:
When you choose BizCover for your business insurance* you’ll enjoy the convenience of being able to compare multiple business insurance quotes online while taking advantage of competitive pricing, just like the more than 220,000 Australian small businesses that choose BizCover. Hop over to the BizCover website or give us a call 1300 920 864 to find out how simple, quick, and easy it can be to purchase small business insurance.
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