Chances are, if you’re over 40 the phrase “risky business” brings to mind Tom Cruises epic lip synch of the Bob Seeger classic “Old Time Rock and Roll.” But if you’re a small business owner, the riskiest business you face on a daily basis is not properly managing the risk your business faces.
Whether you’re in the business of providing bucket list vacations to aging baby boomers or quiet financial advice to retiring seniors, your business needs to have a risk management strategy. Entrepreneurs are by nature risk takers, yet, in many cases, small business owners place risk management at the end of a very long to-do list.
Let’s be clear: Not managing risk is a huge risk to your business. Sure, it’s not the sexiest topic you’ll discuss this week, but if you want to prevent a lifelong dream from becoming a nightmare of failure and legal action, then read on for some tips and ideas about how you can ensure your enterprise is protected.
First Things First
Before you even open the doors, take some time to make sure your insurance covers all aspects of your business. If you are in the construction trade, you’ll want to have a robust general liability policy in place, along with good workman’s compensation coverage. If you’re in the marketing business, you’ll want to ensure you have advertising insurance. No matter what your industry type, you’re going to need to make sure that you are specifically insured against loss and legal action should something you deliver go south.
Your insurance broker is an invaluable partner who can help you make sure your business is not just covered, but totally covered. If you have inventory insurance for your retail store, does that cover you in case your e-commerce site is down for a day or a week? Knowing the answer to that question—and others like it—before you have to answer it is key to protecting your business.
The Downside of the Upside
Believe it or not, growth can be a risk. Ask yourself: What if we suddenly became successful? What if, overnight, EVERYONE wanted our product or service? In the TV sitcom The Big Bang Theory, one of the characters, Penny, has a great idea for a handcrafted paper flower called “Penny Blossoms.” She decides to sell her item online, thinking it will be a great way to make a little extra cash while her struggling acting career takes off. What happens, however, is that she finds herself suddenly inundated with orders that she—and her four conscripted neighbors who help her—cannot possibly fulfill. Although an entirely hilarious sitcom episode, not being able to fulfill promised services is a huge risk to any business—especially if those services are promised by way of an enforceable contract. The best way to manage upside risk is to plan for growth and to grow planfully.
Build Bulletproof Contracts
Working without a contract is like doing acrobatics without a net. If you’re selling a service (construction, marketing, business coaching, etc.), then you especially need to protect yourself with an airtight contract. A good contract spells out for you and your client what is expected, when, and for how much. The Internet is chock full of great templates you can use as a starting point for a general services agreement, but nothing can replace the advice of a good business attorney to help you ensure you’re properly covered for all contingencies.
Don’t Panic: Plan!
A big piece of managing risk is having a plan in place. Take some time and think through your industry, the business environment, and what could possibly go sideways in the course of doing what you do. What are your contingencies in case of emergency? Before the fertilizer hits the ventilator, you really should think through and put into place an adequate (and regularly revised and updated) contingency plan.
No matter how well prepared you are for managing the day-to-day risk of business, it’s important to regularly (we’d suggest at least once a year) review and reconsider your risk management plan. If the nature of your business changes—say you go from selling cruises to selling adventure vacations—you need to ensure the risk management strategy you have in place is still relevant.
The US Small Business Administration offers a lot of great advice on risk management, including a wonderful participant’s guide for their Risk Management for a Small Business workshop. Check it out and use it as a good starting point for your risk management strategy. And please tell us in the comments what kinds of risk you’re facing and managing in your business. We’d love to hear from you!