Risky Business: What You Need to Know to Cover Your You Know What
July 05, 2013
There are three main risks that every small business owner should be aware of.
As a small business consultant, clients often ask me about the biggest risks of running your own business. Whether you’re a burgeoning entrepreneur or an established small business owner, there are three main risks that every enterpriser should be aware of: Financial Risks, Reputational Risks and Operational Risks.
Some of the biggest and scariest risks small business owners face are, of course, financial. Whether you are a single consultant, small or medium sized business owner, being cash-conscious can help ensure your continued success. Just like in your personal life, ignoring your financials can land you in hot water. Implementing best-practices from the onset can help you manage the daunting task of overseeing your business’s financial health. Keeping +-a general ledger and a rolling forecast is a start, but as your business grows, consider taking advantage of the numerous software tools available to small business owners and entrepreneurs. You’ll be amazed at how specialized reports can help keep your bottom line on track.
Additionally, there are several key figures that, if monitored and managed, can help to protect against financial risks. These figures include: cash-flow, accounts receivable, accounts payable, YTD sales/backorders and payroll.
Any entrepreneur will tell you that a business’s reputation is one of its most important assets. Managing (and monitoring) that reputation should be one of your top priorities. However, this process can be a daunting one given the growth of social media and the amount of information available to potential customers and/or clients.
To help with this process, it is crucial to identify the channels that your customers and clients might use to learn more about your company. For example, it might not be the best use of time for a multinational corporation to continuously monitor Yelp; however, as a local bakery, it would be worthwhile to monitor the site for customer feedback.
Once you've identified the key sites to monitor, develop a plan for how often to check these channels and how to address concerns posted by consumers. Digital and social media can be a powerful tool when utilized effectively – or a major risk if completely ignored.
A number of issues can fall within the “operational risks” category, but as a small business owner, there are two particular risks that are important to be aware of: IT/Tech risks and employee risks.
A recent study by Hiscox found that 73 percent of small business IT consultants agreed with the statement that “clients are more worried about IT risks now than they were a year ago.” With the growth in digital and social media comes an associated increase in IT and technology risks. Small business owners that manage sensitive information and/or customer records could face particularly devastating consequences in the event of a data breach or IT malfunction. While many small business owners don’t have a formal IT department, there are preventative steps that can be taken to help protect against issues that may arise from a technology-related risk.
And finally, the next operational risk on the list is one that you may not think of immediately, but is a critical component to the success of any small business: its employees. Hiring employees that are right for your business is important. When it comes to powering small businesses, the quantity of available employees is – just as the name suggests – small. If something happened to one of your employees, whether an unexpected injury or departure to join another business, would you be able to continue your day-to-day operations? A contingency plan can help alleviate the unanticipated stress and strain of an out-of-pocket employee.
Covering Your “You Know What”
Although there is not a magic bullet that can alleviate all of these risks, there is one small step that small business owners and entrepreneurs can take to “ensure” peace of mind and mitigate risk: insure against your specific and unique risks. It is important that small business owners select a business insurance policy – whether general liability, professional liability, or a combination of the two – that is tailored to their specific industry and covers risks that are unique to their type of business. To learn more about insurance options for small businesses and how a policy might protect your business from situations similar to those above, visit the Hiscox Small Business Blog.
Additionally, be sure to check out a recap of the Hiscox National Insurance Awareness Day webinar that I hosted, where I discussed The Five Most Common Mistakes Small Business Owners Make.