Risky Business: Why You Need a Risk Management Plan

For business owners, growth and success can be the biggest rewards. But the bigger and more successful a business becomes, the more it must protect against risks that could take it all away. It’s crucial for business owners to understand the nature and potential cost of all risk exposures and then create a plan to eliminate or mitigate them. But what kind of risk should you be on the lookout for?

The Risk of Disability

For business owners, the most significant risk they face is the possibility of losing their most valuable asset—their ability to earn an income—to an illness or accident that prevents them from operating their business. Most people underestimate the likelihood of becoming disabled, but according to the Social Security Administration, more than 3 out of 10 people entering the workforce today will become disabled and must stop working prematurely.

Most long-term disabilities do not arise out of freak accidents; instead, they’re more likely to occur from chronic back problems, illnesses, and diseases such as cancer and heart disease—conditions that are often beyond our control. Only a disability income protection plan can protect business owners against the possibility of losing their ability to generate income. As part of that plan, owners should also consider purchasing a Business Overhead Expense (BOE) policy, which will cover operating expenses during an extended disability.

The Risk of Being Sued

Business owners are exposed to a range of liabilities, any of which can subject their assets to claims. What’s needed is an asset protection plan built around available liability insurance coverages, including:

  • Business liability insurance which protects your business from general liabilities such as personal injury, property damage, advertising injury, and fire damage.
  • Employers Liability and Workers’ Compensation which is compulsory coverage in all states that protects the business against liabilities arising from injuries or death of an employee.
  • Property insurance which covers damage to the business property, inside and out, including equipment and inventory.
  • Umbrella liability policy which is a personal liability policy designed to protect against catastrophic losses. Generally speaking, umbrella liability coverage kicks in when the liability limits of other insurance are reached.

The Risk of Losing a Key Employee

Key employees are labeled as such because they play vital roles in the business’s success. The unexpected loss of a key teammate could result in revenue loss—and finding a replacement could be prohibitively expensive. Instead, be insured against a loss due to death or disability. Key employee insurance is an inexpensive investment in the future of your business.

The Risk of Employee Dishonesty

On average, businesses lose 5% of their revenue due to employee dishonesty. Small businesses are impacted the most with the median loss exceeding $200,000. And when it does happen, it is most likely at the hands of a trusted employee, making it more difficult to detect.

There are numerous steps businesses can take to reduce or prevent acts of employee dishonesty, including being more proactive with policies and procedures that reduce the opportunities for fraud or theft to occur. But, as with all risk exposures, it is not easy to eliminate them entirely. For a few hundred dollars a year, business owners can transfer that risk to an employee dishonesty or theft policy.

Business Owners Need a Risk Management Specialist

As scary as these risks may seem, there are ways to proactively avoid them. Talking with a risk management specialist will help you understand your business’ vulnerabilities and form a comprehensive, well-coordinated plan. So, you can focus on what you love most about your business.


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