As a small business owner on a budget, it’s a good idea for you to identify potential risks to your capital and revenue streams. Economic changes, natural disasters, legal liabilities, mismanagement, and security vulnerabilities can threaten businesses of any size. When you take the time to evaluate your own risk exposure and develop strategies for mitigating those risks, you benefit in the long run and minimize your exposure.
Risk Identification for Small Businesses
A good possible first step in developing a risk minimization and management strategy for your small business involves an effort during the startup stage to identify risk-mitigating milestones. This provides you with an opportunity to take the necessary preemptive actions that can resolve potential problems before they arise. While it isn’t possible to address all risks immediately, you can establish a plan for addressing the most likely risks.
Minimize Cybersecurity Risk
Data security threats to your company can arise from both internal and external sources, which makes it beneficial to have a risk management strategy for both remote and on-site threats. You can carefully assess the most appropriate cybersecurity software for the needs of your business, and establish strong user authentication protocols. One option is to limit the number of staff members entrusted with full access to your company’s data. You can familiarize yourself with the seven layers of cybersecurity and make them an important part of your risk management strategy.
You will also want a data backup plan that allows for regularly scheduled backups to a cloud-based platform or off-premise server, and it’s a good idea to consider what measures you should take to avoid loss or damage to your company’s computer equipment and data storage devices. Keeping backup copies of software programs that your business uses in the event of data loss is one such strategy. Although you might keep backup copies of data files, the cost of replacing the actual programs for processing that data demands a complete system backup.
Minimize Risks of Theft
You take many steps to keep criminals from stealing from your business — like locking doors and using security services. But according to the Retail Council of Canada, the most likely thieves are inside the building already. Employee theft in Canadian businesses costs $1.4 billion each year. It’s one of the major causes of small-business shrinkage. But the best way to solve it isn’t to look upon workers with suspicion and turn the workplace into a prison. Instead, you can minimize the risk of employee theft through a culture of trust. One important on-site risk involves potential theft by disloyal employees. To the extent possible, you can avoid giving a single staff member access to all of your company’s bank accounts and spread the risk of embezzlement by limiting an individual employee’s access to your company’s money.
While stringent background checks, security cameras, and monitoring employees can help your company with this problem, an even better way to cut down on employee theft is to create a culture of trust. Employees who feel personally invested in the success of your business are less tempted to take advantage of opportunities to steal.
Listen to Your Employees
If your employees trust you and you trust them, theft decreases. But a culture of trust isn’t something you can snap your fingers and create. Trust, as you already know, takes a long time to build. So how do you create such a culture? It starts with listening to your employees. You want them to know that their thoughts, their ideas, their concerns are heard and considered important. That doesn’t mean giving in to their every whim, but It does mean letting your employees know you’re listening and that you care what’s on their mind.
For example, consider the case of two different two employees. Both work the same entry-level job for modest pay. Both have unexpected financial emergencies that put them in a major bind. Here’s where they differ, though: the first employee rarely receives acknowledgement at work and no one listens to their ideas or concerns. This worker isn’t even sure the business owner knows their name. But the second employee knows they can walk into the boss’s office at any time and have a forum to speak their mind. If they’re having financial problems, they know they have someone to talk to about it and perhaps brainstorm a solution.
Who’s more likely to steal in this situation? Both workers need money desperately. But the first has no emotional connection or bond of mutual trust with their employer. The second knows that their boss, and their company as a whole, is there for them. It’s beneficial to position yourself so your employees know they can come to you.
Give Your Employees Freedom
Preventing employee theft by giving workers more freedom might sound counter-intuitive. But to create a culture of trust, you must show your employees that you trust them. That means giving them freedom. Many employers are skeptical about doing this, for obvious reasons. What if your workers take advantage of that freedom? What if they make bad decisions that adversely affect your business? What business owners like you usually end up finding, though, is that they get more productivity out of their workers and have fewer problems. If you choose to show your employees respect and trust, they tend to reciprocate.
Address Issues Head-On as They Arise
Even in a culture of trust, things aren’t perfect all the time. Conflicts and disagreements may surface from time to time. Occasionally, someone might even betray the trust you worked so hard to build. When that happens, it doesn’t mean the whole culture has to collapse. By facing the issue head-on, you can show the rest of your team members that they have your commitment, and that you don’t plan to allow a single issue or a single employee to bring down the ship.
Manage Performance Risks
Perhaps one of your customers claims you failed to deliver what was outlined in a contract and that you mismanaged a project. Or you unintentionally used an already trademarked slogan as part of your new advertising campaign. These are common scenarios that could result in costly lawsuits.
It’s a good idea to obtain adequate insurance coverage and utilize indemnification agreements that place the burden of insuring your company on those entities who perform work or on behalf of your company. For example, an Owners and Contractors Protective (OCP) liability policy may provide coverage for your company arising from claims that come from the acts or omissions of an independent contractor working for or on behalf of your business. OCP coverage protects your company in situations involving liability for the acts or omissions of the contractor acting on your company’s behalf, and from any liability arising from your supervision of the contractor’s activities.
If the contractor’s Commercial General Liability policy (CGL) lists your company on its policy, it affords the broadest coverage to protect your business. It’s a good idea to require a certificate of insurance, directly from the insurance carrier, listing your company as a named insured rather than an additional insured on the commercial general liability policy. You can request a copy of the CGL policy and understand the extent of its coverage.
Prevent Property Risks
Some of the more common risks that you face, as a small business owner, are property and liability damages. Damaged flooring or walkways around your business could lead to slips, trips or falls. Unlocked windows, poorly functioning locks, and unsecured valuables are an open invitation to thieves. And improper storage of flammables such as paint, gasoline or oily rags is just asking for trouble at your small business.
Risk Minimization Plans
- Good housekeeping practices minimize the risk of of fires, accidents and injuries. You can keep flooring, stairwells and walkways in good repair and free of debris while ensuring that storage areas are kept neat and organized.It’s also a good idea to keep waste separated by type (wood, paper, combustibles) and stored away from the building.
- Smoke detectors are a must – and depending on your business, it’s beneficial to look into a good sprinkler system. To prevent break-ins, you can ensure that doors and windows have proper locks and that you have a security and alarm system in place.
- Employee training can help minimize risks. You can make sure that employees receive training on what to do in the event of an emergency, so that they know how to use equipment properly and that they receive the proper safety equipment and protection. It’s a good idea to implement regular drills to go over emergency procedures and evacuation plans.
Consider Hidden Risks
You can’t foresee the future when it comes to risk, but it’s a good idea to develop contingency plans for worst-case scenarios even if they never happen. Hidden risks are unknown factors that could have a negative impact on your business. Examples of hidden risks include adverse weather conditions and damage to goods you’ve paid for while they’re in transit. Bad debt can also poses a risk and leave you able to cover expenses such as payroll if your clients don’t pay their invoices in a timely manner. Data breaches, which occur when your online systems aren’t secure, can result in loss of clients and valuable intellectual assets. One of the most valuable protections you can have for cases like these is a well-stocked cash reserve fund.
As a small business owner, you need to wear a lot of hats. It’s a good idea to take advantage of any and all resources available to protect your business and financial matters. 4.3 million customers use QuickBooks. Join them today to help your business thrive for free.