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Small Business Risk Management Guide
Small Business

Small Business Risk Management Guide

Next Insurance Staff
By Next Insurance Staff
Jun 24, 2019
7 min read

Running your own business is an amazing adventure. It’s your time to shine. You get to do what you love, and in most cases do it your way. This opens a wealth of opportunity for personal satisfaction. And if you run your business well, it’s also a tremendous opportunity to earn an excellent living doing what you like.

That being said, when you’re the boss, you’re also susceptible to all the risks involved in running a business. And there are a lot. We don’t mean to scare you, but it’s important to realize this. Because small business risk management is essential to both your immediate and long-term success.

The First Step Is to Conduct a Full Risk Assessment

If you’re unfamiliar with the term, the concept of small business risk assessment is actually quite intuitive. Think of it as taking inventory of the potential risks that could affect your business. You can start by writing down a list of all the potential risks your business may face, and in what ways they may arise. Once you have your list, we'll move on to the potential cost each risk poses to your business, and how to plan for it.

An Easy Checklist to Begin Your Risk Management Strategies

Your overall risk management list depends on your line of work. For each profession it will be a little different. But there are some basics most businesses can begin with, including things like:

  • Property loss – For example, one risk for a yoga business owner, is that a fire will burn down your studio. What would you do in such a situation? How would that affect your business? And what is the tangible cost? To ensure good business risk management, these are all things you need to consider.
  • Employee loss – Does your field have high turnover? What if a key employee leaves?
  • Equipment loss – Take into account wear and tear on your equipment. This includes the frequency of equipment updates and replacement, as well as the cost.
  • Personal injury or illness – What happens if you’re unable to work?
  • Defective products – If you’re selling or manufacturing products, this is always a risk.
  • Theft and fraud – If you have employees, this too is an ever-present possibility. In fact, in working with people, this is true across the board. As a carpenter a passerby may steal your plywood. If you're a barber people could steal towels from your hair salon. And no matter what you do, clients can bail on the bill in any business.
  • Infrastructure issues – On any given day you can have problems with your infrastructure and utilities that will hinder your work, from electricity, to water supply, and even the internet.
  • Market changes – Some lines of work may become less requested over time due to shifting trends. Others may see a reduction in market reach as the local competition expands.
  • Rent increase – A long-term contract may be risky if you don't know how long you'll need the space. A short term contract, however, may be no better as your landlord could quickly price you out.
  • Weather and natural disaster – Think about what a rainy summer would do for a lawn care professional, and you already know what we mean. But even less obvious professions like a hair stylist or a carpet cleaner can be impacted by the weather as well.

What Is a Risk Management Plan and Why Do You Need it?

Simply put, a risk management plan is a plan for handling any of these eventualities that may occur. This includes evaluating the likelihood of any of your potential risks actually happening, what you can do to prevent these risks, and what you will do in a worst case scenario – that is potential risk treatments to reduce their impact.

The reason you need such a plan is to help your business continue operating, under any number of unforeseen circumstances. It is part of being a responsible business owner, a way to prevent significant financial losses, and an investment in your continued success.

Coming up with a Risk Management Plan for Small Business

Now that you’ve written down all the potential risks your business faces, it’s time to come up with your actual risk management plan.  In general, risk management for small business owners means confronting these issues in one of four ways. That is you can:

  1. Avoid the risk by changing something in the way you work to get around the problem should it arise.
  2. Control the risk by reducing the potential threat or impact it has on your business.
  3. Accept the risk by pre-budgeting for it. For example, a supermarket already has shoplifting losses worked in to its P&L.
  4. Share the risk by doing things like getting insurance (more below) and even outsourcing certain activities that potentially put your business at risk

A Few More Tips to Minimize Business Risks

There is no way to avoid risks altogether. Risks are part of the cost of doing business. But in addition to planning and coming up with escape routes and remedies, you can do a few other things to help minimize their impact.

For example, risk management and insurance go hand-in-hand. So much so that any risk management guide for small business will recommend (even outright insist) that you get business insurance.

But insurance is a bit of a blanket term. There are actually a number of types of insurance you should be considering. You definitely need general liability insurance whatever you’re doing. Same goes for workers’ comp if you have employees. Professional liability insurance is also a good addition in many cases. And you’ll need things like auto insurance, property insurance, and possibly health insurance, depending on your actual business activities.

Contracts are another thing you need in order to protect your business from risks. This means you need to sign contracts with your employees, your customers, your vendors and your suppliers alike. Doing so helps keep your obligations to one another clear, and protects you in case you need to sue, or are being sued yourself. You can have a lawyer write up a contract template for your employees and another one for your customers. Or you can write something up yourself, based on a template you find online. Either way, the bottom line is, don’t do anything business related without getting it in writing – and signed.


Assessing the risks to your business, and creating a detailed plan how to handle them is essential for your success. But remember, you’re in this for the long haul. That means this is not a one-off job. Risk assessment is something you should be doing on an annual basis. As your business grows there may be new risks to add. The external environment may change as well, changing some of the factors in your equation. In other words, like all the bureaucracy involved in small business ownership, this is an ongoing task. It may seem tedious at first, but when you evaluate the risk of not doing business risk management right, you realize, what a minor price this is to pay – and what a huge savings it actually is.

Next Insurance Staff
By Next Insurance Staff

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