5 Ways to Manage Risk as a Business Owner

I worked with a business owner several years ago who unexpectedly passed away after a heart attack. He was in the prime of his life; having spent nearly 20 years building his business to the point where he had “made it,” he was finally able to enjoy the success he had built for himself and his family. Then, everything changed in an instant.

Thankfully, he had life insurance so that his family was taken care of financially, but he had no plan for who would take over his role in the business. His thriving company was thrown into chaos, and his wife, with no business experience, was suddenly thrust into a role she neither wanted nor could handle.

Within two years, the business was bankrupt. What took two decades to build was gone in a tenth of that time.

Risk to a business owner can come in a number of different forms, from a power outage to a heart attack. Managing risk as a business owner involves a layering of planning, processes, and protection.

There are five key ways a business owner can manage risk:
Implement financial protection. We all know insurance is key for protection in our personal lives, as well as our business lives; it’s important to not forget to include “key person” insurance for those people crucial to the business. But financial protection goes beyond major events where insurance comes into play; it also includes having cash reserves or a line of credit to protect the business during a difficult time, or to take advantage of growth opportunities.

Have a succession plan in place. None of us likes to think about the inevitable, but at some point every single one of us will pass on, and some of us may become physically or mentally incapacitated before that point. It’s absolutely vital to discuss these things on both a personal and business level before they become a reality. By having a succession plan in place, you will relieve your family of the added burden of business ownership issues on top of personal ones; and if you have business partners and employees, this is a crucial step for their well-being as well.

Install fraud protections. According to the Association of Certified Fraud Examiners’ 2018 Report to the Nations on Occupational Fraud and Abuse, businesses with fewer than 100 employees actually incur nearly double the average losses of larger companies — $200,000, compared to $104,000 median loss for companies of mor than 100 employees. It is important to work to identify the risk your business faces, and work to mitigate those risks.

Create a disaster recovery plan. A disaster recovery plan isn’t dependent on knowing every type of risk your business faces. It might start with a short-term disruption — be that bad weather or a power outage — to a major disruption lasting a week or even longer. It isn’t important to outline every situation that might happen, but to outline what the plan looks like: who is notified, how employees are contacted, what triggers the plan and what steps are taken. Most importantly, let your employees know a plan exists and where to locate it.

Be proactive. Business owners, by nature, are optimistic. Pessimists who worry about every eventuality seem to come up with any number of reasons why “now isn’t the right time,” whereas successful business owners have to believe in themselves and jump in when others hesitate. This is why it’s important to proactively prepare for an emergency in your business; at some point, something will come up that you won’t be prepared to handle.

The silver lining of being a business owner is that unexpected great things can happen too: a sale of the business that can allow you to retire early and travel the world, or converting the business into an employee-owned organization so your trusted long-term employees can carry on your legacy, or landing a big contract that will stress you to the limit but that will double your yearly revenue.

There are a number of unexpected things that will happen to your business, good and bad, but having contingencies in place can help you reduce the impact of the bad as well as take advantage of the good.

If my client had had a succession plan in place to mitigate risk to his business, employees and family, his business would likely still be around, and his legacy for his family and his name would continue on. Instead, his grieving widow was handed responsibilities she should never have had, and his employees suffered. It’s essential for all business owners to have contingencies in place to mitigate their risk.

Veronica Archer is co-chair of East Valley Neighborhood NAWBO.