Five ways to mitigate risk for your business

Threats to your stability and bottom line are an unfortunate reality of business. As a small business owner, your goal is to minimize that risk so that your business can weather any storm.

To plan for a risk, you must first identify the type of threats your company may face. Risks vary from company to company, but some common ones include environmental catastrophes depending on where you live, public health crises, a recession, and supply chain disruptions. Once you’ve determined the potential threats, here are five steps you can take.

1. Purchase Insurance: Insurance is perhaps the simplest way to protect yourself against unforeseen circumstances.A standard package for businesses is general liability insurance, which covers standard business risks, including bodily injury or property damage on company premises and medical benefits. Depending on your business, other insurance packages, such as commercial property, data breaches, and workers’ compensation, may also be appropriate.

2. Make Contingency Plans: While there will be many situations that you cannot plan for, there are several that you can be prepared for. Once you’ve identified all the risks to your business, create contingency plans for each scenario. General steps to take for all situations include creating a rainy day cash fund and building backup inventory.

3. Learn from your experiences: It is important to constantly update your contingency plans. For example, if your assistant manager is leaving and there is no process for quickly training a new manager, your next step should be to establish an up-to-date employee training program. In addition, there will not be the same problem when your new assistant manager leaves.

4. Consider long-term commitments: Many companies experience problems paying their long-term contracts and loans in times of crisis. Make sure you keep a steady amount of cash flow in an account that can be used to make those payments if you run into problems.

5. Diversify Your Business: If an unforeseen event occurs that impacts your supply chain, a diversified business that does not depend on a single supplier can help mitigate the economic impact.

The degree of impact of a crisis often comes down to how prepared you are for it. While it can be nerve-wracking to deal with every risk to your business, taking steps to prepare can help reduce that stress.