Managing Risk for Business Owners

People often associate “risk” with big things, like a fire, accident or major theft. After all, the definition of risk can be most commonly described as “a situation involving exposure to danger.” But risk can be more subtle, like rising raw material prices or a slow sales period. And what about a business’s risk of losing its top salesperson or its most experienced technician?

Managing risk is a multilayered process for businesses that need to balance the cost of protection with the chances of something going awry. To integrate a wide mix of financial products, processes and tools, businesses benefit from working with a business advisor who can help bring it all together.

Protect the business with insurance, savings and financial flexibility. A first step is to ensure continuity in a range of scenarios. Insurance is a proven and necessary tool for major events, and don’t forget “key man” insurance for people critical to business success. For subtle or slow-moving risks, a cash reserve or other financing can help weather a temporary issue or buy time to readjust to new realities.

Succession planning helps businesses — and people — prepare for the unexpected. Many small businesses delay or avoid talking about succession plans. They shouldn’t. In small companies, talk of succession planning may seem unnecessary or even “bad luck.” But planning what happens to one’s business not only ensures business continuity, it relieves families of the burden of sorting out ownership, and is crucial for the well-being of employees and partners, too. Simply put, how one plan for leadership change, whether expected or unexpected, will determine its impact on one’s organization.

Install fraud protection tools and policies — like reducing paper. Fraud is a top risk for small businesses, and the sources can be surprising. A business advisor can help business owners address their business’s greatest fraud risks, whether it be email fraud, internal financial controls, hacking of customer data or theft of intellectual property. It’s also wise to move transactions to digital systems, as lost and misused paper checks and records are still a leading cause of fraud.

Business Email Fraud
Let’s take a deeper look at email fraud. Business email fraud, also known as Business Email Compromise (BEC), is on the rise across the country. One of the best ways to protect one’s business is to educate oneself and one’s employees.

Unlike other cyber-attacks, these types of fraudster emails don’t contain malware or malicious URLs. Instead, they take advantage of social engineering. Who do they target? Business email fraud attacks target people — usually a business’s CFO or people in its human resources, finance or payroll departments. Using a technique called “spoofing,” the attacks trick these people into thinking they’ve received an email from a boss, co-worker, vendor or partner. The imposter requests wire transfers, tax records and other sensitive data.

These fraudsters succeed because they create emails that are deceptively similar to legitimate messages. They also ask victims to perform tasks that fall under their normal job duties. This is another area where a business advisor can help, offering expertise about ways to help a business prevent becoming a victim of BEC.

Create and share a disaster recovery plan. It is not necessary to know exactly what the risks are to have a plan. Start with the most likely issues, such as weather closures — what triggers the plan, how are employees notified and what happens? Then develop a plan assuming a disruption for a week or longer, or scenarios like an office closure, a server going down or recovering from a major loss. It’s important that employees know there is a plan and where to find it.

Be proactive during an emergency. One key mistake many businesses make in a crisis is hunkering down right when they need help the most. Business advisors have seen it before, and individual businesses can benefit from their experience. But don’t wait for emergencies; a good time to build a trusting relationships is when things are good. Banks can help with emergency financing, and business advisors can point to resources business owners might not find on their own. Even risks from non-emergencies like a business sale can be mitigated more effectively if advisors are in the loop.

There are pragmatic things that can help protect a business’s success even when things don’t go as planned. The good news is that risk management is largely about thinking ahead, and a business advisor who has seen a lot can help a business owner make smart choices.

Tim Brunner is a senior business advisor with Alerus. A banking professional for more than three decades, he has broad experience working with business owners throughout Arizona and helping them reach their financial goals. Brunner has held several leadership positions, including assistant vice president and vice president, at other commercial banking institutions. Before joining Alerus, he was a senior vice president with BNC National Bank.