Creating your own business instead of working for someone else is a noble, essential part of the American dream. Part of creating something new, however, is the inherent risk involved. All business carries some risk, from supply line problems to problems with your product or a million other issues, large and small. The importance of risk management in business cannot be overstated.
You cannot ignore the potential fallout from risk to your business. Loss of revenue, damage to your reputation, or worse could be on the line, so having a risk management plan is essential. You might not ever need it, but your operation will function better knowing there’s a plan in place in case you do.
What Is a Risk Management Plan?
Operating a business, whether large or small, requires a lot of moving parts. A breakdown at any point in creating your product or providing your service could be catastrophic, and the potential for this breakdown is a risk that can look like this, for example:
- Seasonal weather where you’re operating – landslides, hurricanes, or power outages can cause production interruptions or literal damage to your business.
- Attacks from cybercriminals, including hacks, data breaches, or ransomware.
- Literal breakdown of the supply chain for a specific part of your product.
Risk management in business plans examines your operation and determines what risks might be present that can be mitigated. You can’t plan for everything that could happen, but a good risk management plan can foresee the most likely problems and create a system for dealing with them.
How Can I Create a Risk Management Plan for My Business?
The first step is to have a risk assessment done on your business. This analysis will look at the broad problems that could affect your company – weather, fire, robbery – and then will look at the specific risks your business might have. For instance, the fallout from food-borne illness to a restaurant or faulty parts for an automotive manufacturer.
This analysis will identify the likely risks inherent to your business and then create a detailed plan of action to deal with these problems, should they arise. This might look like creating a social media response to communicate with customers or developing a chain of command in case of a disaster.
Simply having this information and knowing what your company would do in a worst-case scenario makes your customers and investors happier. It also creates continuity in your business should something catastrophic happen.
Being Covered for a Risk
Insurance is a large part of mitigating risk – it’s why you have to have car insurance to drive. Liability is a terrifying thing when a situation goes south, and having to deal with a risk reality while worrying about cash flow is like throwing gasoline on a fire.
If your business is in a flood plain, for instance, you would want flood insurance. Since most home and business insurance doesn’t automatically cover disaster damage like earthquakes and floods, your risk analysis will identify this risk. Then you can buy appropriate coverage and rest comfortably knowing that, if the situation arises, you at least won’t need to worry about financial fallout.
Developing a Risk Management Plan for Your Business
The first step in protecting your business from potential risks is identifying them. The benefits of risk management are:
- A plan to protect yourself, your employees, and your finances in the case of a risk turning into a reality
- Happier customers and investors
- Safer operations due to identification of potential hazards
Most companies are worried about making money and serving their customers, not the potential for disaster. But understanding that bad things can happen is critical to ensure that you’ll be alright if they do happen to you.
Creating a quality risk management plan is a simple process, with 4 crucial steps:
- Have a risk assessment performed to find where you might expect problems to arise
- Ensure that you have a plan to keep everyone safe and secure, i.e. fire escapes, police call buttons, or alternative suppliers, depending on the risk
- Create a plan for business continuity and customer communications, in case of a catastrophe
- Purchase insurance to protect your finances
If you’re ready to learn how to identify and mitigate risks to your business, contact an agent at Marine Agency. We’re here to help you protect your assets and your employees from the risks of everyday business.