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Posted on by Mike

Risky Business

So let’s say you have a great business idea, an outstanding value proposition, attractive pricing and a plan to generate highly qualified leads.  Even better, you have a dynamite team, no debt and no competition in sight.  Home free!  Right?  Maybe not.

Regardless of how well you have planned and are positioned for success, every business is subject to a world of risks and threats they can’t control.  So listen up and pay attention to what you need to know and do about preparing for disruptions when risks and threats materialize.

The most effective way to manage risks and threats is to prevent them.  For those that can’t be prevented, use insurance to reduce or eliminate the impact that unplanned-for and uncontrollable events will have on your business.

 Balancing Risk and Cost

Before strategizing to eliminate or reduce risk, you will want to understand that not all risks are equal.  Measuring the impact of loss, it’s likelihood of occurring and frequency of exposure is important for determining the materiality of each risk and threat.  This will help you balance the cost of addressing risk exposure against the likely impact to your business.

 Prevention That’s Free

Most operational risks can be eliminated or reduced by taking actions that anticipate likely occurrences. Here are some things you should pay attention to.

Security is an operational risk that should be anticipated.  Focus on both physical security and information security.

 A walkthrough of your physical plant may reveal easy perimeter breach possibilities, fire hazards or blocked or impeded exit routes.  Even the physical placement of business machinery should be considered.  For example, I used to work for a major company that housed all of their central computing equipment and data storage directly below its cafeteria.

 If you record employee or customer sensitive information that information needs to be guarded by both physical and logical means as well as by business procedures.

 Proper contracts with both employees and vendors should be reviewed and updated if required.  Employee agreements should be clear and unambiguous at the time of hiring and should always include the terms of review, reward and termination.  Vendor agreements should stipulate that the vendor, not you, will bear the full risk of loss to himself or to you in the course of business with your company.  Require proof of insurance and that it is sufficient to cover any loss or damage.

 An often over-looked risk is that of employee conduct.  Things like harassment and dishonesty can expose you to significant lawsuits.  By issuing even a minimal “employee handbook” assures your position and expectation of lawful and acceptable behavior in any situation.  This also gives you the freedom to discipline or terminate without legal repercussions.

 If you do business with many suppliers, identify the suppliers that are critical to your business operations and be certain you have identified backup suppliers in the case your primary choice is unavailable.

All the prevention in the world cannot eliminate every risk and the physical and monetary damages that can be incurred.  That’s where insurance comes in.

 Insurance When You Need It

Every company knows that running a business is a risk.  People can get hurt both monetarily and physically, businesses can get hurt both monetarily and physically.  People can die, businesses can go under.  The idea of risk management and insurance is to identify your businesses exposures to loss and mitigate your damages.  This can be done in many ways, such as halting operations where harm might be caused, but this would probably put you out of business too.  So, you have to identify your risks and look at the cost of insuring against those risks and then decide how much it is worth to you to be protected in case of catastrophe.  One of the nice things about partnering with an insurance professional is they can look over your current policy for gaps in coverage, or they can come and visit your establishment and literally look at your operation, talk to you and get a feel for the exposures you have.  New insurance products become available all of the time, and insurance coverages change with time, so it is important to stay on top of these changes to keep you properly insured.

 Insurances to Consider

There are many types of business insurance policies that you should consider.   Some of them are:

–   Worker’s Compensation (Statutory requirement)
–   General Liability
–   Directors and Officers Liability
–   Professional Liability
–   Business Interruption

 The list above just scratches the surface of exposures you can buy protection for.  However don’t forget to assess the materiality of the exposure you are protecting against.  Additionally, best practice requires that you review all of your insurance policies periodically (annual review makes sense, maybe as part of your year end or tax preparation procedures) since the “materiality” of loss is likely to change as your business lives on.

 Thank-you Jillian

In writing this post I received help from my friend and professional colleague, Jillian Rowen.  Jillian works at Frenkel & Company at Harborside Financial Center in Jersey City, NJ.  Frenkel & Company is an experienced insurer of any type of business risk.  Learn more by contacting Jillian at 201-356-0128 or emailing her at jrowen@frenkel.com.

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