What is risk management?
If you run a small to medium sized business you might have never heard of the term risk management. Sure we all can figure it out just based on the words “risk” and “management” but what does it really mean? Well the technical definition taken from Marquette University states that Risk Management is “the continuing process to identify, analyze, evaluate, and treat loss exposures and monitor risk control and financial resources to mitigate the adverse effects of loss.”
Um…what? Did you get all of that? Me neither & I am in risk management.
Now if you are like me and most other business owners, you say ok, cut the technical mumbo jumbo and just tell me the basics please and why I should care.
In a nutshell, risk management is looking at your company from 50,000 feet in the air. It’s like what Marcus Lemonis says in The Profit: It’s looking at your people, your processes, and your profits. Its preparing your business from all of the what-ifs that could happen.
Why do I need it? I have insurance. Isn’t that enough?
Now, I know you think, well that’s why I have insurance. I have worker’s compensation for my employees. I have business insurance for slip and falls or a fire, and I have anything else that I need. But there are things that insurance doesn’t cover. Suppose a disgruntled employee leaves you and decides to tell everyone how bad of a business you are and that results in a drop in business by 20%? Or suppose an employee left and started a company exactly like yours and started siphoning off your clients that you have built up for the past 15 years. Can you afford to take these employees to court to defend yourself and your business? Think about it, you are already down in business from them, and then you can easily reach $25,000 - $30,000 in a few short months defending a case that you might not win.
Or what if your local laws changed and said that you are not able to sell your top product anymore in your area? Are you in an area that minimum wage is going to be increasing up to $15 / hour?
The reality is that while insurance can help with many of the unforeseen issues that could happen to your business, it is not a fix or guarantee for everything. I have seen so many companies on the verge of going out of business or lose everything in the blink of an eye because of simple fixes that planning ahead could have helped.
Risk Management does that for you and your business. It not only looks at your company from 50,000 feet in the air, it helps you as the owner protect what you have built the last 10, 20, or even 30+ years. So what are things that are covered in Risk Management? There are things like policies & procedures manuals, employee handbooks, looking at your marketing & PR, and yes the financial health of the company. The good news is there are many resources online today that you can find specific to your industry to help you plan for the future and protect what you have built today so you don’t have to start from scratch.
Looking for more information on what you can do to include Risk Management in your business? We have created a FREE checklist of the top 20 things you can implement today in your company to protect you and your company.
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