When it comes to getting your new business off the ground, it can be difficult to know where to start. Admittedly, there is a lot to consider. Nevertheless, establishing effective risk management practices should definitely be at the top of your to-do list. Although it may not initially seem essential to your operations, this step is crucial to ensuring the long-term success of your business—regardless of size, location or industry.
After all, no business is risk-free. A wide range of incidents—including natural disasters, cyberattacks, equipment breakdowns, employee injuries and various lawsuits—can result in consequences for any establishment.1 While such an incident may only lead to a minor setback for a more established organization, all it takes is a single loss to potentially leave a lasting impact on your new business. In fact, nearly 20% of new businesses fail within the first two years of opening their doors, according to data from the Bureau of Labor Statistics.2
By implementing a proactive approach to risk management, you can help minimize the impact of adverse events on your business, as well as prevent some of these events from happening altogether. Beyond the scope of loss control, adopting a risk management mindset will also encourage you to think strategically and make more informed business decisions—keeping your organization successful well into the future. Here’s how you can kickstart your new business’s risk management program and maintain it over the years.
The first step in any risk management program is to carefully assess your business’s operations and determine potential exposures. In other words, you will need to take a closer look at all business-related activities to determine what could go wrong, thus causing a loss. Some common sources of exposure include:
- Having a physical business location—Some areas are more prone to natural disasters (e.g., earthquakes, hurricanes, floods and wildfires) than others. That being said, the location of your business can contribute to potential property damage exposures. The nature of your operations could also create various exposures. For instance, the amount of electricity you use or the types of materials you store on-site could lead to serious fire hazards.
- Hiring employees—Having a workforce comes with additional risks and responsibilities. As an employer, you are required to provide a healthy and safe work environment for your staff. In the event that an employee experiences a work-related injury or illness on the job, you could be subject to the resulting costs or damages. Apart from workplace health and safety, managing relationships with staff can also create numerous challenges. Allegations of discrimination, harassment, wrongful termination or other employment-related issues can lead to costly lawsuits.
- Inviting customers to the premises—Permitting visitors on your commercial property can expose you to various liability concerns. For example, if a customer slips and injures themselves on your property, they may be able to sue your business for any injury-related expenses that arise.6
- Handling sensitive data—As technology continues to evolve, so do cyberattack methods. And while handling data (e.g., employees’ personal records or customers’ financial information) digitally or implementing new workplace devices may be essential to your operations, it can make your business more vulnerable to cybercriminals. If an attack does occur, the accompanying cyber liability costs and reputational damages can be significant.7
- Utilizing vehicles and workplace equipment—Operating vehicles can be helpful for transporting and delivering goods, while many forms of equipment can help businesses conduct operations more efficiently. However, utilizing vehicles comes with the risk of being involved in an accident on the road, potentially injuring others or damaging their property.8 Workplace equipment can also create serious safety hazards, open the door for business interruption issues due to equipment breakdowns and make your business a target for criminals looking to steal high-value items.9
By identifying your business’s exposures and possible loss scenarios, you will be able to develop more personalized mitigation measures and tailor your risk management program to meet the specific needs of your organization.
Consulting the experts
You don’t have to go about establishing your business’s risk management practices alone. Another important aspect of kickstarting your risk management program is to consult trusted organizations and advisors. This may include the following:
- Your commercial insurance broker—Working with a broker is one of the most critical steps in developing a successful risk management program. An experienced broker who specializes in your business’s particular industry can help you identify your unique exposures, risk management best practices and coverage needs.
- Your insurance carrier—Commercial insurance carriers often conduct risk surveys at the inception of a new policy. From there, the carrier will analyze your business’s exposures and provide specialized recommendations for preventing a loss. It’s best to view your carrier as a partner in your risk management program. Refrain from adopting an adversarial viewpoint toward their advice—their primary goal is to help your business avoid experiencing losses.
- Your business attorney—A commercial lawyer can help you understand which federal, state and local laws apply to your operations and minimize your business’s regulatory exposures.
- Trade organizations—There are a variety of organizations across the country aimed at bringing together business owners from a particular sector and providing them with industry-specific guidance. Such an organization can provide your business with much-needed industry insight and outline common risk management measures.
- Fellow business owners—Lastly, connecting with other business owners can allow you to learn from their past experiences and gather firsthand knowledge of how to maintain successful operations.
As a whole, consulting these individuals and organizations will give you the necessary support and resources to help finalize your business’s loss control measures and establish a top-notch risk management program.
Maintaining your program
Keep in mind that your risk management program is a constant work in progress. As your business changes and grows, so do your exposures. With this in mind, it’s crucial to remain vigilant in identifying potential business risks, routinely review your program and make updates as needed.
Be sure to stay in touch with your trusted organizations and advisors for further support and guidance as you make changes to your risk management program. A continued, solid relationship with these sources will help you remain up to date on the latest risks and implement appropriate mitigation measures.
Overall, establishing a risk management program is well worth your time. Further, putting in the effort to maintain your program will ensure its long-term effectiveness and, in turn, the lasting success of your business. For more information on how you can assess risks for your new business, be sure to visit the Nationwide Business Solutions Center.