Risks Involved in Business
Running any business is not an easy task as it involves so many different kinds of risk. Few of the potential risks can hamper running of the business to a great extent while others can totally destroy your business. In spite of risks being an inherent part of the business you can prepare against impact of these risks.
Different categories of risks present in business
Physical Risks: The risk related to your business premises i.e. building is one of the most widespread category of physical risk. A building can easily be affected by fire or any kind of explosion. To take care of this kind of risk, it is vital to follow the steps mentioned below:
- Ensure that all employees of your organization are aware of the precise street address of office building so that they can call the emergency in case of need
- All exit doors should be known to the employees.
- Put up fire alarms as well as smoke detectors.
- Also install sprinkler system so as to render additional protection.
- Inform all the employees of the organization that if there is any kind of emergency their individual safety precedes over anything else.
Dangerous material spills and accidents can also happen in the organization. Acid, toxic fumes, gas, toxic dust, toxic liquids or waste are most commonly spilt hazardous materials in any organization. Fire department perilous material units are set up to take care of such categories of tragedies. Individuals who handle such materials, nevertheless, should be appropriately equipped as well as trained to deal with these materials in a safe manner.
A plan of action should be established and executed to cope up with the instant effects of such risks. Government agencies as well as local fire departments assist in obtaining information to put off these accidents and also offer advice regarding how such incidents can be controlled.
Location Risks: The perils related to location of any business are storm damage, nearby fires, tornado, floods, earthquake, hurricane, and any other kind of natural disasters. Those working in the organization should be aware of the streets which lead to and fro from neighborhood. Always make sure that there is enough fuel in your vehicles so that you do not get stuck whenever any emergency situation arises.
Human Risks: Drug abuse as well as alcoholism is key danger to personnel in your organization. Employees who suffer from such problems should be persuaded to undergo treatment, therapy and rehabilitation if required. Few insurance policies provide part coverage for treatment cost. Protection against theft, embezzlement, and fraud is very tough, but these crimes happen regularly in any organization. Establish a system of double signature in your organization to prevent theft and frauds.
Technology Risks: The most common category of technology related risk is power outage. Install a good generator in your organization so as to get adequate power back up in case of emergency. In manufacturing units, a large number of auxiliary generators facilitate normal working of the factory until power supply gets restored.
Ways to Minimize Business Risks
No businessman can ever run away from business risk. You can just minimize risk and not get rid of it totally.
Make sure that you are alert about your cash in hand
One of the biggest risks for any enterprise is improper cash-flow management. In case a firm does not manage his cash properly, it can lead to serious consequences for its existence. Do away with cash crunches by setting up a contingency plan and putting aside at least six months of your operating expenses in reserves.
Get insurance against specific risks
Just buying regular insurance policies is not enough. You must be aware of the exclusive risks which your business has to face and then you should get insurance against such risks. There are so many risks which business owners generally ignore and they can at times lead to serious consequences. Suppose your business is concerned with online component. Be sure that the policy which you have taken encompasses this facet of the business.
In case you change your business, change your insurance policy too
Fix up a meeting with a reliable insurance agent so as to find out whether your business change necessitates any change in your insurance policy. Many times, business owners need additional coverage but they tend to ignore this fact. This is a big business risk and should be avoided at any cost.
Insure all important people in your organization
In case the main staff leaves the organization or they cannot do duties assigned to them, this can adversely affect your business. So it is advisable to take key-person insurance or insurance of person whose presence is critical for your organization.
Make use of contractual indemnification clauses
Ask for indemnification to cover potential harm caused by other organizations or people on whom your working depends on regularly. For example you sell some software to your clients and it happens that the person who gave you that software did not have rights to sell that software and you get sued due to this. In this case you can ask for indemnification charges from the person who cheated you.
Always have an option
Suppose you launch any new product or you sign a contract with someone, you should be able to tackle your losses in case the new products fails to capture the market. In case of a contract, you should mention in the contract how you can terminate the relationship.
Set up separate entities
Whenever you take new risk, always create separate legal entities. Make use of separate legal entities so as to minimize any loss of assets. Also establish separate entities to prevent the loss of your assets. In case of any important long-term asset always think about creation distinct holding entity. The biggest example for this is real estate. Put your property into separate entity. You can rent the same back to your business. One more example for this can be patents of your products.