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Your Risk Management Plan

Apr 25, 2014

In your business plan you want to figure out how you will protect yourself and your business from risk.  First, you want to understand what your risks are.  There are basically three categories to examine:

  • What are your property risks?  Think of buildings, vehicles, and equipment.
  • What are your liability risks?  In this case, product liability, obligations to customers visiting your business or a problem with a professional service you are providing are common examples.
  • Finally, what are your perils, such as theft, fire and flood? 

Once you have figured out what risks your business faces, you then want to work out how to deal with them.  There are generally three ways to handle risks:

Risk Transfer – This is for high severity infrequent events.  Insurance is a common way to mitigate risk, but think about leasing a building instead of buying it.  Also think of business interruption – can you manage this or should you insure against it?  If your business has to close for three months, do you have other income or a rainy day fund to keep you afloat?  If you do seek out business interruption insurance (also called business income insurance), it is more affordable if you’ve been in business for a while.

Retain the Risk – In this case you accept the risk as part of doing business, mostly for less severe risks, which are both common and expensive to insure against (shoplifting is an example) or playing the odds against that risk.  In this risk retention, there are two ways risks are retained, passive retention and active retention.  Passive retention is where you just play the odds it won’t happen.  Active retention, for example, is where you set money aside for an event.  This could be factoring loss and damage to inventory in to your pricing scheme. 

Controlling the risk:  You may just avoid the risk altogether or you can reduce the risk (training, fire extinguishers, certification, etc.).

There will always be risks and you will discover new ones all the time.  Planning on how to manage those risks so that you can make them less likely to happen or survive them when they do happen, ensures that your business will be better and stronger because of it.

We have added much of this to our business plan template, available along with other great business information on our website,

Category: Business Planning

Jim Drever

Jim Drever is a counselor with the Wyoming SBDC.

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