Five Ways To Mitigate Risk For Your Business

Threats to your stability and bottom line are an unfortunate reality of business. As a small business owner, your goal is to mitigate that risk as much as possible so that your business can weather any storm.

To plan for a risk, you first need to identify the type of threats your business could face. Risks will differ from business to business, but some common ones include environmental disasters depending on where you live, public health crises, a recession, and supply chain disruptions. Once you have determined the potential threats, here are five steps that you can take.

1. Purchase Insurance: Insurance may be the most basic way to protect yourself against unforeseen circumstances. A standard package for businesses is general liability insurance, which covers standard business risks, including bodily injury or property damage on the business premises and medical payments. Depending on your business, other insurance packages such as commercial property, data breach, and workers compensation may be appropriate as well.

2. Create Contingency Plans: While many situations will arise that you cannot plan for, there are several where you can be prepared. Once you have identified all the risks for your business, create contingency plans for each scenario. General steps to take for all situations include creating a rainy-day cash fund and stockpiling backup inventory.

3. Learn from Your Experiences: It is important to constantly update your contingency plans. For example, if your assistant manager leaves, and there is no process in place to quickly train a new manager, your new step should be to create a current employee training program. In doing this, there will not be the same issue if your new assistant manager leaves.

4. Be Mindful of Long-Term Commitments: Many businesses find issues during times of crisis with making payments on their long-term contracts and loans. Be sure to maintain a fixed amount of cash flow into an account that can be used to make those payments if you face issues.

5. Diversify Your Business: If there is an unforeseen circumstance that will affect your supply chain, having a diversified business operation that is not dependent on one supplier will allow you to mitigate the economic impact.

A crisis’ level of impact often boils down to how prepared you are for it. While dealing with any risk to your business can be unnerving, taking steps to prepare can help alleviate that stress.