No one needs to tell a business owner that business is risky! Even small business owners feel the pressure and expectations of the public, employees, suppliers and regulators that hold businesses to ever higher levels of professionalism in their operations.
Many types of risk.
Besides the common economic risk all businesses face, there is physical risk of loss to business assets from fire, theft, weather, accidents, etc; legal risk arising from tort lawsuits (legal liability from customers, suppliers or employees) and, ever increasing statutory liability and regulatory compliance; social risk to reputation or brand including new social media concerns; and even political and regulatory risk regarding changes in laws or enforcement of complicated regulations.
Risk management is more than insurance.
Insurance does not lessen, change or mitigate risk. However, it is an essential and fundamental way to "finance" certain types of losses. A business can budget and pay an affordable, predictable premium that will cover the most common business losses and shift the financial risk of those losses to the insurance company. This allows the cash and surplus of the business to be used to operate and expand rather than reserved for unexpected losses.
So, what is risk management?
Whether you run a small one-person business or a multi-national corporation, all businesses naturally practice some form of risk management. Most small business rely only on informal safety plans, procedures and insurance.
Risk Management is a more formal approach.
It is defined as the process of managing the uncertainty of risk exposures that affect an organization’s assets and financial statements using five steps:
- identification and analysis of exposures
- controlling the exposures
- financing of losses with external and internal funds
- monitoring of the risk management process.
Benefits of risk management.
Big financial surprises can serious set-back or even destroy a business. An effective risk management program helps plan for the inevitable surprises and minimize their impact by having an organization identify their unique exposures and the risks associated with those exposures. Once the exposures and risks are identified, the organization can then attempt to prevent and reduce costs associated with losses, and to spread the financial risk over various funding methods.
Establishing a risk management program.
Get help and start small – but start! Like any complicated endeavor you take it one step at a time. AMERICAN INSURANCE can help you get started. Just CONTACT US!