Insider Secret #4: Managing Business Risks.
While every business is unique, there are commonalities to be found when it comes to assessing and managing risks.
Employee Risks. One of the components required to build a successful and stable business is attracting and hiring the right people. Providing Group Benefits may be an advantage when recruiting new talent. It can also be a tax-effective strategy for the business. Group benefits can be customized for large companies as well as companies with only a handful of employees.
Owner/Partner Risks. A strong relationship between owners/partners is key. Preparing in advance for unexpected loss or conflict makes dealing with difficult situations that much easier. Consider:
- A Buy-Sell Clause – A condition allowing an owner/partner the right to buy the business interest of the other business partner.
- Life, Disability and Critical Illness Insurance – If an owner/partner dies or becomes ill the company can use this insurance to buy out partner’s business interest.
Key Person Risks. More often than not, there is a key person who is vital to operations, a top salesperson or a senior executive. Losing them could have devastating consequences for the company. Three ways to manage the loss of a key person would be:
- Insure valuable people in the company. This could aid in the recruitment and training of a replacement and can also provide financial aid in declining business income due to the loss of your key person.
- Get creditor insurance. Insurance that is paid directly to the financial institution not your business, to help cover debt obligations. This will provide assistance with financial responsibilities i.e. business loans/ mortgages.
- Share employee skills. Train a few employees on various tasks needed to help run the business, so a backup is always available when someone is sick or on an unexpected leave of absence.
Economic Risks. Risks of an economic nature are also possible because of fluctuations in interest rates and currencies. Economic risks are outside the control of business owners. Minimize the impact by focusing on expenses now, spending strategically and revaluating operating costs regularly. In short, spend wisely.
Credit Risks. It is always beneficial to consider Accounts Receivable Insurance, which lessens the loss due to unpaid accounts receivable caused by a customer’s inability to pay. It is also helpful to check with a Credit Bureau to research credit patterns of potential customers before delivering products or services.
Operational Risks. It is important to assess potential liabilities for your enterprise. Every business is unique and it is important to determine the appropriate level of liability insurance coverage your company may require.
It is not pleasant to think about, but you could lose your business to a fire, flood or even theft. Catastrophic events do happen, so it is important to protect your business with appropriate property insurance. Be sure to acquire coverage that is designed around the specific potential risks your company may face.
Understanding the risks that could negatively impact your business is the first step in the risk management process. No one ever plans to fail but they often fail to plan. Prepare for the unexpected with The Art of Accounting. Ask us how.