Business risk management for owners of smaller companies

February 07, 2022

Being proactive, rather than reactive, is key.

 

When you start a small business, it’s easy to get excited about the positives: a new beginning, future growth, happy customers and profits. But it’s also important to consider the possible risks.

All businesses face risk, which is defined as the probability or threat of damage, injury, liability, loss or any other negative occurrence that may be avoided through preemptive action. Risks are commonly separated into four categories: market, credit, operational and reputational. Risks may involve internal or external factors, including marketplace volatility, changes in regulations, criminal activity, a workplace accident, an employee’s mistake, an illness or even inclement weather.

Risk can’t be avoided completely, but small business owners can take these important steps to manage it effectively.

 

1. Identify potential risk

While some types of risks are common for almost all businesses, others might be unique to your industry or your individual business. The Small Business Administration has resources to help you identify potential risks, such as:

  • Property losses
  • Business interruption losses
  • Liability losses
  • Key person losses (when the company owner or a key employee leaves or passes away)
  • Injury to employees

 

2. Measure the impact of potential risks

Once you’ve identified the potential risks for your business, document how they would affect your cash flow, earnings and operations. Some risks could have a minor impact, while others could have catastrophic results. For example, if you run your business out of a home office, take inventory of all the equipment you use and what could happen if an event — a power outage, equipment failure or theft, for example — prevented you from using it. How would your cash flow be affected after an afternoon of interrupted service? After a day or a week?

 

3. Create and follow a business risk management plan

Develop a strategic plan for mitigating the potential risks your business faces, emphasizing the risks that would result in the most loss or damage to your business. Involve people from multiple areas of the business to brainstorm ideas and then assign responsibilities to individuals to make sure all bases are covered. Keep in mind that this isn’t a plan your small business management team can develop once and then ignore. It will require diligence and ongoing refinement and improvement.

In the above example, what simple methods could be implemented to protect your equipment? Some preventative measures might include extra security locks to prevent theft; power surge protectors or a backup generator; or investing in an equipment service plan from the manufacturers.

 

4. Invest in business insurance

Talk to an insurance agent or broker with small business insurance experience and find the right coverage for your business. Insurance is key to managing risk because it helps you cover financial losses and continue — or resume — operating the business, even in the event of loss, liability or disaster.

 

5. Hire an attorney

It’s critical to hire a good lawyer to protect your business from lawsuits and to assist you in risk management planning. Most business owners would find it hard to stay up to date on the law and the latest court cases, so it makes sense to have a professional working on your behalf. 

In addition to protecting your business, managing risk has the added benefits of helping to reduce your insurance premiums, deductibles and business downtime.

Creating a risk management plan for your small business should be one of the first tasks you take on when you start a new business, and it should remain top of mind as your business grows and changes.

 

Discover other ways to manage risk in your small business at usbank.com/small-business.

Learn about U.S. Bank

Related content

What is CSDR, and how will you be affected?

Evaluating interest rate risk creating risk management strategy

Employee benefit plan management: trustee vs. custodian

Risk management strategies for foreign exchange hedging

Webinar: CRE technology trends

Avoiding the pitfalls of warehouse lending

Real world advice: How parents are teaching their kids about money

Helpful tips for safe and smart charitable giving

Travel for less: Smart (not cheap) ways to spend less on your next trip

How to reward employees and teams who perform well

Allowance basics for parents and kids

30-day adulting challenge: Financial wellness tasks to complete in a month

High-yield bond issuance: 5 traits lawyers should look for in a service provider

The latest on cybersecurity: Mobile fraud and privacy concerns

Year-end financial checklist

Putting home ownership within reach for a diverse workforce

Administrator accountability: 5 questions to evaluate outsourcing risks

For small business growth, consider the international market

Easier onboarding: What to look for in an administrator

Insource or outsource? 10 considerations

4 questions you should ask about your custodian

Refining your search for an insurance custodian

Service provider due diligence and selection best practices

Best practices on securing cardholder data

Turn risk into opportunity with supply chain finance

Hospitals face cybersecurity risks in surprising new ways

Authenticating cardholder data reduce e-commerce fraud

Post-pandemic fraud prevention lessons for local governments

Webinar: Robotic process automation

Proactive ways to fight vendor fraud

5 Ways to protect your government agency from payment fraud

Fight the battle against payments fraud

Fraud prevention checklist

Complying with changes in fund regulations

Why Know Your Customer (KYC) — for organizations

The password: Enhancing security and usability

How to improve your business network security

Government agency credit card programs and PCI compliance

Cybersecurity – Protecting client data through industry best practices

Business risk management for owners of small companies

BEC: Recognize a scam

Evaluating interest rate risk creating risk management strategy

Webinar: CSM corporation re-thinks AP

Increase working capital with Commercial Card Optimization

Tech tools to keep your restaurant operations running smoothly

Webinar: AP automation for commercial real estate

Addressing financial uncertainty in international business

5 winning strategies for managing liquidity in volatile times

The future of financial leadership: More strategy, fewer spreadsheets

Digital banking and cloud accounting software: How they work together

Choosing your M&A escrow partner

High-cost housing and down payment options in relocation

Why retail merchandise returns will be a differentiator in 2022

Save time with mobile apps for business finances

Crypto + Relo: Mobility industry impacts

For today's relocating home buyers, time and money are everything

Webinar: CRE Digital Transformation – Balancing Digitization with cybersecurity risk

Empowering team members

10 tips on how to run a successful family business

How I did it: Grew my business by branching out

Making a ‘workout’ work out as a business

How a bright idea became a successful business (in Charlotte, North Carolina)

Making the leap from employee to owner

Business tips and advice for Black entrepreneurs

Tools that can streamline staffing and employee management

How to identify what technology is needed for your small business

Planning for restaurant startup costs and when to expect them

How to test new business ideas

The role of ethics in the hiring process

8 ways to increase employee engagement

How to hire employees: Employee referral vs. external hiring

Give a prepaid rewards card for employee recognition

Checklist: Increase lead generation with website optimization

Is your restaurant Google-friendly?

How small businesses are growing sales with online ordering

3 simple brand awareness tips for your business

How a small business owner is making the workplace work for women

The growing importance of a strong corporate culture

How small business owners can budget for the holiday season

Why credit cards should be the first choice for business payments

7 uncommon recruiting strategies that you may not have tried yet

How increased supply chain visibility can combat disruptors

6 common financial mistakes made by dentists (and how to avoid them)

Business credit card 101

Meet your business credit card support team

How to apply for a business credit card

What kind of credit card does my small business need?

Do I need a credit card for my small business?

How jumbo loans can help home buyers and your builder business

5 questions business owners need to consider before taking out a loan

How to establish your business credit score

Break free from cash flow management constraints

5 tips for managing your business cash flow

5 ways a business credit card program can grow your business

Building a business with a great product and a greater purpose

How running a business that aligns with core values is paying off

Meet the Milwaukee businessman behind Funky Fresh Spring Rolls

Improve online presence your business

Honey Luxury Beauté: growing a side project into an eye-catching beauty business

How Shampoo’ed is transforming hair and inspiring entrepreneurs

The San Francisco bridal shop that’s been making memories for 30 years

How Al’s Breakfast is bringing people together

In a digital world, Liberty Puzzles embraces true connection

Celebrity Cake Studio’s two decades of growth and success

How a travel clothing retailer is staying true to its brand values

How to build a content team

Use this one simple email marketing tip to increase your reach

How (and why) to get your business supplier diversity certification

Tips to overcome three common savings hurdles

5 tips to use your credit card wisely and steer clear of debt

How to stop living paycheck to paycheck post-pay increase

Practical money tips we've learned from our dads

6 ways to spring clean your finances and save money year-round

How to cut mindless spending: real tips from real people

How to increase your savings

5 tips to use your credit card wisely and steer clear of debt

How to spot a credit repair scam

5 unique ways to take your credit card benefits further

Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, Home Equity and Credit products are offered through U.S. Bank National Association. Deposit products are offered through U.S. Bank National Association. Member FDIC.