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Risk is an everyday part of owning any business — you’ll never eliminate it. The challenge is finding the right balance between profitability and peace of mind, often referred to as risk management. While risk management can be complex, it doesn’t have to be at first. Follow these five steps to get you moving in the right direction:
Step #1: Identify your business risks.
Some risks are common to every business, while others will be specific to your business. Some initial risks include the following:
Step #2: Determine your risk level for each identified area of risk.
Consider your vulnerability within each risk and decide which ones are worth taking. For example, if you identify a risk that has a low probability of occurring and could potentially cost your company about $40,000, but you could protect against this loss for $35,000, it may not be worth it for you to use your resources this way.
During this step, you want to be as specific as possible — don’t leave anything out. That way, you can better protect yourself from a loss.
Step #3: Buy insurance to protect your business from loss.
Buying the right insurance is a central part of proper risk management. Here are some common types of business insurance you should consider:
Step #4: Prepare a contingency plan for your business.
In addition to buying insurance, you should create a contingency plan to protect yourself from other identified risks that may not be covered by insurance. Here are a few ideas to consider:
Step #5: Monitor and adjust your risk management plan.
You should review and update your risk management plan at least every six months. Often, insurance companies will provide advice on how to mitigate new risks you encounter. And if you’re looking to participate in new business opportunities, having a structured and updated risk management plan will help you get the investors you may need for success.
Where do you start?
We recommend discussing your business needs with a trusted insurance agent to ensure you get the right coverage at the best price possible. As your business expands, you may require more protection; therefore, review your coverage annually to ensure you have the best coverage available. Additionally, it may be a good idea to discuss your risk management plan with your business’s financial planner or a risk management consultant.
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