How to Manage the 3 Most Common Risks Faced by Every Business
If you own a business or are an executive or CFO for a company or non-profit, then you understand what we mean by business risk. We do believe there are three common categories of risk faced by almost every business:
- Loss of Property
- Lawsuits or Liabilities
In each category, we will describe what exposures to watch for, but also steps you may take to prevent or reduce the likelihood and impact of these threats to your bottom line!
You have an exposure to property loss if you answer “yes” to any of these questions:
- Do you own buildings, autos, equipment, inventory or office furniture?
- Did you pay to build out the inside of a leased premises and are you responsible for rebuilding it if there’s a loss like fire?
- Do you maintain customer’s goods in your possession for any period of time?
- Do you own any electronic data (i.e. customer data) that would cause substantial loss of income and increased expenses to recover?
- Could anyone (an outsider or even an employee) potentially steal from your business’s financial accounts?
You may have a property risk, but what is the nature of that risk? Many commercial property insurance policies will not respond to your losses under certain circumstances. The types of insurance policies used to manage the above risks are Commercial Property, Commercial Crime and Cyber.
However, there are also non-insurance risk management strategies that should be used to prevent and reduce these possible losses. In order to evaluate the type of business property risk, you’ll need to answer the following questions:
- How much would it cost to replace your loss of property (this is different from current value or market value)? Does your insurance policy have the correct limits, based on the replacement costs?
- If the property you occupy (whether owned or leased) were damaged, would you lose income for any important period of time? Would you have increased costs for relocating, like the move itself, media coverage to notify your customers, etc.?
- Does any property you own leave the premises?
- If one of your main suppliers shut down due to a fire at their facility, how would that impact your business?
- How much money could be taken from you over a period of time by a scam or even by an internal employee or vendor?
- How much would it cost to restore lost data and how much income would you lose during the recover period?
RISK MANAGEMENT STRATEGIES
Once you know the type and nature of your property exposures, then the following tactics can be used to manage that risk (Hint: we have the resources to help with all of the below):
- Driver training and vehicular maintenance for your autos
- Premises safety and loss prevention like alarms, training for employees, signs, sprinklered buildings, etc.
- Managing and diversifying your supply chain to reduce reliance on any one supplier (unless you feel really good about their own risk management plans)
- Creating a Business Continuity Plan to minimize the impact of a loss to your own property or from one of your vendors
- Implement internal financial controls to prevent theft
- Manage your IT risks with backups, duplicates, firewalls, password management, and employee guidelines
There are so many ways a business can be sued! The type of industry you are in and the nature of your products or services have a dramatic impact on what liabilities you face. Therefore, a very effective way to evaluate your business risk to liabilities is to review what types of insurance are available:
- Commercial General Liability – provides protection against business risks like product liability, personal or advertising injury, premises liability (i.e. slip and fall) and completed operations (e.g. faulty wiring causes constructed building to burn down)
- Professional Liability – errors or omissions in your professional services
- Liquor Liability – liability arising from the sale or distribution of alcohol
- Pollution Liability – liability from the seepage or spilling of pollutants
- Business Auto Liability – bodily injury or property damage to others when driving owned or non-owned autos
- Employment Practices Liability – discrimination, wrongful termination or retribution to employees in violation of EEOC or FMLA guidelines
- Directors & Officers Liability – lawsuits against the owners or directors of a business from employees, competitors or even customers
- Fiduciary Liability – liabilities generated by the implementation of retirement plans for employees and the existence of an internal “fiduciary”
- Cyber Liability – your business risk related to the loss of customer data following a data breach on your system or for losses to your customers following a breach that gets to them through you (i.e. viruses or phishing scams)
RISK MANAGEMENT STRATEGIES
Each of the above types of business risk can be managed via insurance or non-insurance methods. The following strategies are just a few non-insurance risk management tactics (again, we can assist with our resources to help you):
- Slip and Fall prevention strategies at your premises
- Product quality control
- Checklists and guidelines for delivery of services
- Improved employee training including emphasis on risks to your customers (or others) that may be associated with their job in the organization
- Contract reviews with your attorney before signing and also improve your own customer contracts
- Driver training
- Enforcement of minimum insurance requirements on any vendors or subcontractors
Employees are a critical part of most every business. They allow us to grow and expand at much higher rates. This is the backbone of any organization. They also create increased business risk in many areas which needs to be acknowledged and addressed.
The following business risks are typically associated with employees:
- Work-related injuries that cost your business lost time/productivity and also money via work comp claims
- Downtime due to FMLA or illnesses (for themselves or family members)
- Health problems affecting performance at work
- Turnover, again, costing lost time/productivity and sometimes money via unemployment claims or lawsuits
- Employee theft of company money or property or from your customers
- Employee errors causing loss of customers or damaged relationships
RISK MANAGEMENT STRATEGIES
The most obviously strategy to avoid the above problems is to hire stellar employees, train them really well and hope they never get hurt! Unfortunately, that strategy doesn’t always work, even though it’s what we all want. Good employees go rogue or still manage to get hurt all the time. Here are the tactics we suggest to manage the above risk factors:
- Employee safety training that includes detailed Job Hazard Analyses
- Follow all rules set forth by the EEOC and FMLA
- Encourage healthy lifestyles and if you can afford it and are a large enough organization, consider an on-site clinic with health coaching/counseling, like Symbol Health Solutions
- Implement internal controls to protect your business finances and also your customers
- Create a worker injury process that involves guidance for the employee on where to go and what to do. Stay in touch with your work comp adjuster, the doctors and the employee until they are fully recovered and back to work.
- Manage your work comp claims proactively to reduce the impact on your experience mod rate