How business owners can choose the right risk management partner

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By Juan José Pérez, President, National business solutions.

In today’s increasingly unpredictable business landscape, small and medium business owners face a range of challenges and uncertainties that can disrupt their operations and hinder their growth.

Some of today’s largest risk exposures stem from economic conditions, with a recent survey of our company two thirds of entrepreneurs expect a recession in the next six months – and the majority of this group expect it to be worse than the Great Recession of 2007 to 2009.

On top of these economic pressures, business owners face increased complexity due to digitization and rapid advancements in AI, cybersecurity vulnerabilities, supply chain challenges and changing government regulations. They also face newer risks, such as geopolitical uncertainty, decisions about when (and if) their workforce should return to the office, and much more.

Navigating today’s volatile business environment – and preparing for the next setbacks – requires comprehensive risk management strategies. It is understandable that many entrepreneurs do not have the expertise or time to tackle this on their own. That’s where risk management partners, including financial advisors, insurance professionals, attorneys, cybersecurity experts, banking partners, and others, can act as critical resources, providing expertise, guidance, and solutions to help protect businesses from potential pitfalls. (Full disclosure: My company offers some of these services just like others.)

Here are some key considerations to help you identify and engage effective risk management partners.

Contents

1. Start with a quality financial professional or advisor.

If you don’t have one or you’re wondering if existing partners would be the best fit for your business, you can start by talking to other business leaders in your network. Their experiences will often tell you more than any website or marketing brochure. Once you’ve identified a few candidates, I recommend the following steps:

• Taking interviews. This will help you find the partner that best suits your needs. You can expect them to ask questions about your current investments, financial goals, insurance needs, retirement plans and level of investment risk. Be sure to ask for references.

• Check their credentials. Certifications do not guarantee competence, but it is ideal to work with a licensed professional. Common designations include Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Chartered Financial Consultant (ChFC), Certified Investment Management Analyst (CIMA), Certified Public Accountant (CPA), and Chartered Life Underwriter (CLU).

• Ask how they are compensated. There is no right or wrong way, just make sure it matches what you feel comfortable with. Some investment professionals are paid a commission, others charge a fee, and some charge a fee plus commission.

• Learn about their connections. A financial professional or advisor can often serve as a “risk management quarterback” by connecting you to other more specialized partners in their network, including commercial insurance agents, benefits advisors, lenders, attorneys, or information technology experts.

2. Focus on your most important asset: your talent.

With many fearing the worst in terms of economic conditions, it’s easy to let emotions drive decision making. However, it’s important to remember that cutting your top talent or not investing in the benefits or compensation that would make them want to stay with your company comes with a deductible. When economic conditions improve, you want to be ready to take advantage of the environment instead of watching your competitors do it while you rebuild your team. If you don’t understand your options, you risk losing your most important asset: your people.

When looking for a financial advisor, look for one with a strong network of key partners who can help provide guidance and support in areas such as compensation planning, financial wellness programs and succession planning. They should also be able to help you put together a competitive pension package. The recently passed SAFE 2.0 Act makes it easier and more affordable for business owners to offer employer-sponsored retirement plans, but this new legislation can be difficult to navigate alone. In fact, our research found that small and medium-sized business owners have limited knowledge of the provisions of the new legislation that make it easier to provide employee benefits. A competent partner should be able to help you navigate such legislation for the best outcome.

3. Think broadly when planning for risk.

Most organizations face avoidable, strategic and external threats that can be managed by identifying and planning for risk. When the pandemic hit, many business leaders were blindsided by risks they could never have imagined. When quarantines started, a 2020 study found that businesses with monthly expenses over $10,000 had only enough cash on hand to last about two weeks. The pandemic was a harsh reminder of how important it is to think ahead and prepare for the unexpected. A good risk management partner can help provide this forward thinking and contingency planning.

When engaging new or existing risk management partners, ensure your discussion includes the following types of risk to identify potential gaps in your strategy.

• Human risk: Does your company provide the benefits, resources and incentives to attract, retain and develop the workforce you need to sustain and grow?

• Financial risk: How would rising interest rates, an economic downturn, prolonged inflation, or interruptions in your company’s cash flow affect your ability to meet customer needs?

• Liability risk: How would a weather event, accident or lawsuit affect your business? Does your insurance cover everything you think you’ll do? Are you overlooking a liability issue by not working with a lawyer?

• Partner risk: Do the institutions and individuals managing your company’s risks have the track record or the financial strength to demonstrate that you can count on them to be there when you need them? Do they have certifications that align with industry-wide ethical and business standards? Does their reputation and brand match yours?

When you identify the gaps in your strategy, you may see the opportunity to use existing partners to address them, or the need to bring a new partner to the table.

Entrepreneurs are risk takers by nature. But hoping for the best and figuring things out as you go can put you at an avoidable stumbling block. A good risk management partner should be willing and able to help you identify and manage risk to strengthen your business’s resilience, protect your reputation and capitalize on opportunities amid uncertainty.


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