Don’t Take Risks—Manage Them

Don’t Take Risks—Manage Them!

There is a perception that people who start and run their own businesses are risk takers. This term may accurately describe those individuals whose businesses are driven by unbounded optimism and instinctive knee-jerk reactions to new business opportunities. However, nothing could be further from the truth in describing those people who succeed in their own businesses over the long term. These people don’t take risks— they manage them. Risk management involves eliminating risks or reducing them to a manageable level. The process starts with understanding the risks that you face and taking steps to reduce these risks, if not entirely then at least to a manageable level. Although there are some risks that we cannot control, we can plan our responses to these risks when and if they occur. This means that part of your normal planning involves contingency plans that will allow you to respond effectively to risks beyond your control. Insurance can help reduce if not minimize the risk of some kinds of losses. Property insurance will cover risks of loss to property and third parties. As well, special business provisions can help insure specific kinds of business losses. Life and casualty insurance is good for providing benefits if poor health prevents you from running your business.

What Is Risk Management?
What does managing risks mean? It is not something new, nor is it unique to business. Essentially it means either avoiding or eliminating risks entirely or reducing them to acceptable levels. In living our lives, we don’t blindly expose ourselves to risks that could result in serious injury or even death. We take steps to avoid, eliminate, or reduce the risks we face. Is it not reasonable to follow the same approach in running your own business? Successful business owners do not blindly take risks that could bring their personal and financial world tumbling down around them. They take steps to avoid, eliminate, or reduce the risks they face. And so should you.


So How Can You Manage Risks?
Effective risk management starts with understanding the risks you face. Understanding your risks means researching and gathering information about them. Is it possible that despite your enthusiasm about your goods or services, customers will not buy from you? Of course it is. To address this issue, do your homework to find out if the goods or services are currently being purchased in your marketplace. Who are the customers? Why do they purchase? From whom do they purchase? Why should they purchase from you?
Beyond My Control?
In life and in running a business, we all face risks that are beyond our control. Even if we are wearing our seatbelts, we still risk being involved in a collision with other motor vehicles.
Since these factors are beyond our control does it mean that we stop driving? Or in my case, do I abandon a healthier lifestyle and accept a heart attack as inevitable? Of course not. Having done what you can to reduce the risk to an acceptable level, you get on with running your business, trying not to worry about any risks that still exist.

Assuming that problems are the norm when running a business, what implications does that have for risk management? Essentially it means that as well as planning how you will eliminate or reduce your risks, you must also develop a contingency plan to address different problems as they arise. If your banker declines your loan, what will you do? If your customers don’t buy your goods or services, what will you do? What will you do if your customers buy your goods or services but don’t pay you? What other risks does your business face? What will you do if they occur? By developing a contingency plan outlining how you will handle different risks, then if they arise you can manage them effectively. You will be a double winner if it turns out that you don’t use your contingency plan. First, you can run your business more confidently knowing that you are prepared for most risks. Second, the process of preparing your contingency plan improves problemsolving abilities, adding that type of experience to your current set of skills. As a result, if in the future you face a problem or a risk that you were not anticipating, you will have the confidence and the know-how to manage it effectively.
Property Insurance Is Good
Insurance is one of the most popular ways of protecting yourself against risks. Most insurance companies provide coverage for small and home businesses. These companies have major limitations for coverage on business property, such as stock and equipment, and for liability, such as slip-and-fall injuries. If requested, however, most insurers will extend coverage to provide protection for incidental business use in the home. The premium for this coverage is usually quite nominal. Coverage is also available for assets such as computers and furniture that are used in a home business. You can choose either all risks insurance, which provides very broad coverage, or named peril, which covers only those risks specified. You can choose between replacement cost and actual cash value. You can also add coverage for property, such as portable computers or stock in transit that is away from your main location.

➤ Risks can be managed by eliminating them or reducing them to a tolerable level.
➤ There are some risks that are outside of your control; you can, however, manage your response to these risks.
➤ Good planning includes contingency planning.
➤ Property and also life and casualty insurance can protect against specific named losses.