Running a small business successfully can be incredibly rewarding. As well as providing a means of making a living for yourself and your employees, it can also give you a strong sense of accomplishment as you watch your business grow. If something were to happen that would prevent your business from operating for a few days, weeks, or even months, it could have a significant impact on your wellbeing and that of your employees.
Most small business owners are, therefore, well aware of the importance of risk management. For most small businesses, the risks fall into three main categories: financial risk; physical risk; and human risk. While there are steps you can take to mitigate these risks, there are always aspects that are completely out of your hands.
Your finances could take a hit if your key customers choose to no longer do business with you. Especially if you rely on a handful of such customers, losing just one or two could put a significant dent in your revenue. It’s important to diversify your customer base to avoid this risk.
You could also be affected by suppliers who don’t deliver according to specifications. Whether the product is wrong or just late, this can mean you can’t give your customers the products you promised them, causing them to go elsewhere and potentially damaging your relationships. Again, diversification can help ensure you have viable alternatives if a supplier lets you down.
One of the most disappointing and potentially damaging risks to your business is that posed by dishonest employees. If you hire someone who steals from you or the customers, or otherwise behaves fraudulently, it can be difficult to recover your reputation, let alone the money you’ve lost.
Your business faces risk every day from events such as fire, flood, storms, vandalism, earthquakes, and more. Your premises could be damaged to a point where major repairs are required and you can’t operate as normal.
Furthermore, your business could suffer liability-related losses if someone is injured or worse on your premises. This type of physical risk can be mitigated by setting strong expectations around workplace health and safety requirements and developing a culture of safety.
No matter how well you run your business, if you employ people then you face the risk of those people falling ill and being unable to work, or behaving in a way that lets the business down such as fraud or theft.
In some cases, businesses have the situation that they have an employee who is so valuable to the business that losing them would put the entire operation in jeopardy.
You can’t control everything: insurance covers the risks you can’t prevent
While many small business owners have considered and planned for most risks, it’s impossible to predict and prevent every single risk facing your business. And when it happens. Do you have the capital or cash to put it right? That’s where insurance comes in. The right insurance can financially protect you from losses in case adverse events occur. Like most small business owners, you’re probably well aware of this and have taken out insurance policies for this very reason.
However, what you may not know is that most businesses are underinsured. This means they don’t have adequate insurance to cover the main risks they face.
Underinsurance can happen when the insurance policy you have doesn’t cover you for events that are likely to happen, or because your insurance policy only covers those events to a certain limit. If that amount is unlikely to cover the real cost of an incident, then your business could be out of pocket if an incident occurs, creating a shortfall that adds to the stress of having an insurable event happen in the first place.
The third way you can be underinsured is if you don’t have the right policies in place. This can mean you are fully insured for one aspect of an incident but not others. In many cases, this manifests as having commercial property insurance to replace lost or damaged equipment, but not having business interruption insurance to cover your lack of cash flow because you can’t operate while you wait for your equipment to be replaced.
It’s essential to ensure you’re covered for all the unforeseen events that could potentially cause losses for your business. Without a crystal ball to see into the future, that could seem like a daunting task. However, by working with an experienced insurance broker who is also a risk advisor, you can identify the risks in your business and put the right policies in place to protect against them.
Even if you already have insurance, it’s important to regularly review your policies to ensure you’re actually covered for the things you think you’ve accounted for. As your business evolves and your understanding of the potential risks becomes deeper, you may decide to change your policies. Working with an experienced broker can help ensure you get the right policies at the right price.
Contact a NZbrokers member today to see how they can help.