Why is Risk Management Necessary?
Risk is a part of everyday business life. You will encounter many types of risk in your small business. Every business encounters risks, some of which are predictable and under your control, and others which are unpredictable and uncontrollable. Some will have a minimal impact and you can manage them easily; others may threaten the very existence of your business.
A Business and Legal Risk Assessment involves identifying, analyzing, and taking steps to reduce or eliminate the exposures to loss faced by your business.
A Risk Assessment is vital for your small businesses, since some common types of losses such as property damage, liability claims, employee claims breach of contract claims and disputes with co-owners can destroy what may have taken you years to build. Such losses and liabilities can affect day-to-day operations, reduce profits, and cause financial hardship severe enough to cripple or bankrupt your small business.
Wouldn’t you prefer to minimize those things that may negatively affect your business and identify identifying those things that will help to achieve the goals and objectives of your business? A Risk Assessment will help you do that.
What Larger Businesses Do?
Larger businesses employ a full-time risk manager to identify risks and take the necessary steps to protect their company. You do not have that luxury. Instead, the responsibility for risk management falls on your shoulders. Your decision depends on whether you are you an ostrich or a businessperson.
Why you NEED a Risk Assessment – The Benefits
Your Small businesses can expect many benefits from applying risk management principles in a structured and systematic way. These include:
• Improved communication between you and your staff
• Improved relationships with your clients, employees, suppliers and contractors
• Stronger business planning and achievement of objectives and goals
• Reduced litigation potential
• Increased competitive advantage
• Enhanced quality of product or service
• Increased efficiency and productivity
Why you SHOULD – good business practices
There are many reasons why you should apply risk management and these include:
• Increased transparency in financial management
• Enhanced staff confidence in a secure and safe work environment
• Enhanced client confidence in the quality and integrity of a product or service
• Protection of assets and the longer-term viability of the business.
Why you HAVE TO – legal compliance
There are many legal regulatory requirements relating to risk management and these include:
• Employment Laws
• Contractual obligations
• Insurance requirements
• Financial reporting requirements
Where You Might be at Risk
• Structures, Agreements and Insurance
• Dealing with Co-Owners and Partners
• Employee Issues
• Business Operations
• Advertising and Intellectual Property
Structures, Agreements and Insurance
• Inappropriate business structures for asset protection and tax minimization
• Inadequate or unenforceable Business Succession Planning
• Inability to recover loans to businesses where the business becomes insolvent
• Rights and obligations pursuant to continuing agreements (e.g. Leases)
• Lack of adequate insurance or under insurance
Dealing with Co-owners and Partners
• Implications from the death, illness or disability of a key person or employee
• Unsuspected or early retirement of a co-owner
• Disputes between co-owners
• The sale of a co-owners shares or interest in a business without notice or consent
• Disputes with employees
• Competition from former employees and loss of key customers or trade secrets
• Disclosure of confidential information
• Inadequate or lacking Standard Contract Terms & Conditions and contracting procedures
• Unlimited liability to third parties and customers
• Exposure to fraud and theft
• Financial stress due to bad debtors and inability to recover debt collection costs
• Liability in negligence and/or strict liability cases
• Compliance with industry specific legislation
Advertising and Intellectual Property
• False or misleading statements or warranties in advertising
• Difficulties in enforcing Intellectual Property rights where rights are not properly protected
• Unintentional infringement of Intellectual Property rights of third parties on websites.
The Poulos Law Firm offers a comprehensive Business Risk Assessment service resulting in a detailed report identifying the risks faced by your business and providing advice and recommendations for minimizing or avoiding those risks in future.