managing small business risk – GoForth Institute Blog

What are the different types of small business risk?

Being an entrepreneur can be exciting and infinitely rewarding – but it’s also quite risky. Let’s review the types of risk you’ll most likely face as an entrepreneur, and how you can handle them.

IP Theft

Unfortunately, intellectual property theft and piracy can’t be stopped. However, you can lessen your risk by investigating suppliers and manufacturers before you commit to doing business with them, and registering all trademarks in all countries where your company is doing business.

Cyber Security Risk

We all know that cyber security risks are a way of life now. There are hackers who attack computer networks, phishing attacks (gaining access to sensitive data such as user names and credit card information), and viruses. Insurance exists to help you manage your internet risk. Make sure your insurance policy covers you if you conduct any part of your business online.

Supply Chain Risk

Your supply chain comprises the companies that provide you with raw materials, manufacturing and assembly activities, or inventory. When a supplier faces financial hardship and can’t provide supplies and the business owner has no back-up supplier, you can lose sales and customers. Mitigate supply chain risk by finding a contingency or back-up supplier.

Regulatory Changes

The risk of increased regulation, taxes, new laws and rules is very real. Unfortunately, it’s nearly impossible to predict them. Regulations and paperwork are frustrating for growing ventures and the cost of compliance — the time and resources required for a small business owner to comply with government rules and regs — is increasing every year.

Product or Service Liability

A growing small business, particularly one that manufactures a product, should plan for a potential product liability lawsuit (litigation) at some point in the company history. Mitigating the risk of product liability from the very beginning by running an efficient operation with clear safety and product quality standards will help prevent a legal minefield.

Decline in Sales

A decline in sales is usually met by an entrepreneur’s denial. In very small companies, the entrepreneur often is the sole employee responsible for all day to day operations of the business. Often, they lose sight of customer’s wants and needs and changing market conditions around them. Lowering prices is usually not the best response to a slowdown in sales. If customers understand the value of a product or service, lowering the price often confuses existing customers. When a growing business first notices a drop in sales, it’s time to find the root cause and make strategic changes.

Loss of Key People

No business can count on keeping key members of the team forever. People change, circumstances change. Succession planning — identifying people who can take over the company in an emergency, or take over the company permanently when the entrepreneur wants to exit — is an important part of managing business risk, particularly for the smaller business. Cross-training key people is one way to limit the risk of a business being left without someone to steer it.

Financial Risk

Financial risk is the ultimate risk for most entrepreneurs — lose the business and you’ve lost your investment. Managing regulatory, operational and market risks will limit the financial risk of running a business. Whichever risks you face with your business, remain practical and realistic. Avoid overanalyzing the situation or getting stressed out over the significance of your decisions and actions. Risks should be identified, analyzed and prioritized to make decisions easier on management.

Global Environment and Health Risk

Central banks and other authorities now consider climate change as a risk to financial stability. Additionally, we all remember the impact that COVID-19 had on small businesses all over the world. Create a climate action plan for your business and scan the business environment for potential threats to your business’ livelihood. Ensure your plan can be implemented quickly. Forewarned is forearmed!

Want help making decisions about risk? Check out our recent blog post about tips for managing risk in your small business!

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Tips for managing small business risk

Risk is a fact of business life. Understanding where risk lies allows you, as a small business owner, to prepare ahead of time and develop strategies to minimize business risks.

To help you manage risk and make decisions effectively, you’ll need to develop a number of skills. Decision-making and risk management can be learned by anyone, but it’s up to you to strengthen them as much as possible.

Things to keep in mind when facing risk

As an entrepreneur, you’ll face unexpected decisions along with routine and planned decisions— it’s important to be able to deal with both. When making decisions, keep these things in mind:

Have a clear understanding of the decision to be made
Consider the vision and values of the company
Evaluate the consequences and outcomes of your decision
Brainstorm as many alternatives as possible
Evaluate the pros and cons of each alternative
Be sure the appropriate person is making the decision
Understand the timeline in which the decision must be made

I’ve made a decision – now what?

Once you’ve made your decision, you should re-examine it and the effects that it’s had. Avoid relying too much on expert information but ask others for their opinions when it’s necessary. Be realistic when evaluating alternatives and avoid hearing only what you want to hear. Remember the importance of the decision, but don’t focus so much on the significance of the decision that you’re too stressed to make an effective assessment.

Avoid overanalyzing the situation or getting stressed out over the significance of your decisions and actions. Risks should be identified, analyzed, and prioritized to make decisions easier on management.

First, determine the possible consequences that could result, and then develop a list of ways to reduce the risk. You could choose to avoid, reduce or transfer the risk. Mitigate your risks as much as possible by using technological and human resources. For example, you can mitigate or transfer risk by purchasing insurance. Once you’ve evaluated alternatives and decided on an action plan, set out a framework and timeline for your actions. Be sure to include any relevant people when devising a risk management plan, like your public relations representative in a risk involving the company’s image, or your accountant in a risk involving the company’s finances.

We’ll leave you with some good news — when it comes to managing risk, small and medium enterprises are better at it than larger companies!

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How to manage your team when working from home

Managing Employees Working From Home

Many small businesses across Canada have had to adapt to the COVID-19 pandemic, which includes having everyone work from home. If you’re new to managing a team of remote workers, here are some tips and guidelines to keep in mind.

How to manage a remote team

Be flexible and understanding. Many entrepreneurs and employees alike have been thrust into the work-from-home life in this unprecedented time, and are doing their best to manage their work responsibilities while managing family and their own mental health. Of course, your employee should be as considerate of their deadlines and schedules as in a traditional office. But it’s important to remember that most people are adjusting to this new way of working, while at home potentially with other family members who have their own schedules and needs too. You may have to be extra flexible to account for this, and cut your team a little more slack than normal.
Check in on a regular basis. Whether it’s weekly group chats or one-on-one check-ins, make sure you talk to each of your employees on a regular basis to see how they’re doing. They may need an extra day to complete a project, or may be in need of community resources to help them. Don’t pressure them to talk, but make sure they know your virtual door is always open.
But don’t jam-pack the days with meetings. Back-to-back meetings are often distracting even in a regular office environment, let alone a working from home during a pandemic environment. It’s important to make sure that everyone is kept up to date and knows what’s going on, but it might be a good idea to scale back the amount of meetings you have, to ensure nobody gets overwhelmed or falls behind. Instead, try quicker messaging options like Slack.
Trust in your team. A huge part of running a virtual office is trusting that your team is working. You can’t stroll by and chat with them like in a traditional office. Of course, you should be monitoring their overall progress and how they get there, but don’t make checking their social media and constantly asking for updates a regular part of your day. Many of us have seen reduced productivity during the pandemic, so take that into consideration as well.

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The different types of small business insurance

business trends

Do you have insurance for your small business? If not, we strongly recommend that you do. After all, you don’t want all your hard work to be ruined by fire, theft, or other types of risk.

So what type of insurance does your small business need? Here are three basic kinds of insurance that we believe every business needs to have:

Fire Insurance — This covers for any damage caused by fires. You should also look at coverage for storms, smoke damage, floods or any other disasters.
Theft Insurance/Burglary Protection — No matter what type of business it is that you run, you need to cover yourself from theft.
Liability Insurance — Should be obtained to cover your business for any type of injury sustained by anyone while on your premises.

Once you’ve got those bases covered, you may want to investigate other types of insurance for companies in more specific industries or situations. Review these carefully, and identify which could possibly be a concern for your business:

General Liability Insurance — Covers your business’ assets if your company is sued due to injury or property damage.
Professional Liability Insurance — Important for those providing a service like consulting or coaching.
Product Liability Coverage — Important if you’re starting a food-related business.
Health Insurance — May be necessary if you’re not covered by a spouse’s plan.
Surety Insurance — Provides surety companies with 100% reinsurance capacity.
Fidelity Insurance — Protects from loss of securities, money or inventory resulting from crime.
Dishonesty Insurance — This will cover thefts that might occur by employees of your business. You should discuss insurance requirements for your business with a qualified and experienced insurance agent.
Crime Insurance — Covers money losses due to counterfeit money orders or paper currency, credit card fraud, forgery or employee breach of trust.
Business Interruption or Loss of Income Insurance — Protects you from any losses due to a temporary interruption or shutdown of the business.
Business Travel Insurance — Can cover medical expenses during travel, trip interruption/after departure insurance, flight and travel accident insurance, as well as baggage and personal effects insurance.
Business Premises Insurance — Covers for damage from a variety of causes to your business premises.
Credit Insurance/Accounts Receivable Insurance — Protects against the non-payment of outstanding accounts receivable balances, and losses from currency inconvertibility or transfer risk.
Business-use Vehicle Insurance — Covers motor vehicle accidents involving any company vehicles.
Disability or Accident and Sickness Insurance — Covers disability, accidents or sicknesses of company employees or owners.
Workers’ Compensation — Required if you have employees or contracted workers.
Key Person Insurance — Required if there’s a key person or people within your business. The insurance is used to help cover the replacement of knowledge and expertise of the key person/people in the event of death. This allows the company to keep running and avoid dissolution.
Partnership Insurance — Required in the case of a partnership to protect partners from the demise of another partner.
Identity Theft — In order to protect yourself and your business from identity theft.
E-commerce Fraud — Necessary for companies that do business online. Includes protection over spammers, websites being hacked and online service functionality.

With these types of business insurance, you can rest easier knowing that you’ll be protected!

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