Very small businesses face all the same risks as bigger businesses and a few more besides.
If you are self-employed or in a very small business, you may think you do not need to take risk management seriously as you will not have very big risks. Or you may think there is nothing you can do about it anyway.
Do risks vary according to the size of your business?
It is easy to assume that small businesses face smaller risks than big businesses and that very small businesses must have hardly any risks. How true is that?
- Of course many risks can be regarded as being proportionate to the size of the business. For instance the amount of property or the number of vehicles you own or are responsible for, and the numbers of people you employ, will determine the size of those risks
- But the impact of any loss through fire, theft, accident or whatever, will be proportionately greater the smaller your business, as the cost will represent a greater number of days’ income.
- In fact small businesses are more vulnerable because they do not have large financial reserves. Think how many days’ income your business could afford to lose, and then think what would be the effect of losing one client, one employee or one supplier for any length of time. Or the cost of having to pay out compensation for an accident injuring someone.
Surely, insurance is the answer?
- I would certainly recommend reviewing your insurances regularly to ensure that you have adequate cover for your risks and equally that you are not spending money on premiums unnecessarily.
- However, it is always better to prevent a claim, especially as the number and cost of your claims will affect your premiums.
- It will be worth thinking about Business Interruption, Professional Negligence, Cyber Risk, and Key Man insurances as well as the more usual ones such as Property, Motor and Public and Employers’ Liability.
- There are however other risks which are generally uninsurable, or for which only limited cover is likely to be available. These include losses due to fraud, penalties imposed by regulatory bodies, damage to your reputation, and the results of bad business decisions. For these kinds of risks prevention is definitely better than cure.
Is it true that small businesses are more likely to incur unforeseen losses than bigger businesses?
- That may be so, since they cannot afford the luxury of employing experts within the business to deal with certain matters increasingly requiring specialist skills and knowledge. These include Human Resources, Health & Safety, Marketing, Public Relations, Information Technology, and Finance.
- All these things tend to be dealt with by the business owner/manager or by an all-purpose administrator. Yet it is unlikely that any one person will possess all the skills and knowledge needed for all these responsibilities, and to keep them up to date in a fast-changing world.
- Then if something goes wrong and a claim is brought against the business, it is often this same all-rounder who has the job of investigating, liaising with insurers, corresponding with the claimants and their solicitors, and making any decisions about denials, admissions and offers.
- In addition to all this, if you are in a one-person business, or even a slightly bigger one, you will not have the benefit of being able to talk things over with colleagues when problems arise. Even the most self-sufficient often find others useful in bringing different perspectives to an issue or just being sounding-boards.
How does networking help?
Being involved in a business networking group can help address some of the issues mentioned above.
- It can certainly provide sounding-boards
- It can enable you to outsource specialist services as and when needed, which you could not afford full-time.
- It can also help with maintaining knowledge and skills, by providing training and development opportunities.
What else do I need?
What it cannot necessarily do is provide you with an objective professional review of your risks, nor an effective claims-handling service. For such things it is worth consulting a suitable professional at least annually.