The nature of small business includes a myriad of risks. After all, no investment can escape the inevitability of the risk-to-reward ratio.
There are many different types of risks in small business, and depending on the owner’s level of risk tolerance, a company may face more risk than security. Here are three of the key risks that small business owners often make, as well as tips on how to reduce them and protect assets.
Risk #1: Not having enough cash in hand
Small business owners often fail to make the grade when it comes to cash flow management. They rely so heavily on business lines of credit, investors and credit cards that it’s hard to see where the actual dollars are. One contingency measure to combat cash flow problems is determining how much money the business actually has and planning for the worst. Asking certain questions can help address cash flow issues. What if the biggest client suddenly stopped buying? How long could the business last if no more revenue was generated? What expenses could be cut in a crisis? Simply asking these questions is enough to start developing a contingency plan.
Risk #2: Not aligning insurance with the business
Insurance is complicated, but it’s one of the best ways to protect against adversity. Often times, business owners fail to align their insurance policies with their actual assets and risks. This is especially true when changes arise in the business (i.e. moving to a new location, purchasing new equipment, etc.). Make sure to change your insurance policy when you make a significant change in the business.
Risk #3: Relying too much on one person to manage critical business functions.
Small businesses often feature small numbers of employees. A serious risk is relying too heavily on one person to take care of pertinent functions. If one person in the company knows how to do payroll, and that person is injured seriously in a car accident, it creates a significant problem for the business. Cross-train employees and make sure that no one person becomes indispensable.
Addressing just one of the above issues can significantly reduce the level of risk in your small business. Tackle all three, and you will have a business that is fortified against adversity.
