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Making a Risk Management Plan for Your Business
It’s impossible to eliminate all business risk. Therefore, it’s essential for having a plan for its management. You’ll be developing one covering compliance, environmental, financial, operational and reputation risk management. These guidelines are for making a risk management plan for your business.
Developing Your Executive Summary
When you start the risk management plan with an executive summary, you’re breaking apart what it will be compromised of into easy to understand chunks. Even though this summary is the project’s high-level overview, the goal is describing the risk management plan’s approach and scope. In doing so, you’re informing all stakeholders regarding what to expect when they’re reviewing these plans so that they can set their expectations appropriately.
Who Are the Stakeholders and What Potential Problems Need Identifying?
During this phase of making the risk management plan, you’re going to need to have a team meeting. Every member of the team must be vocal regarding what they believe could be potential problems or risks. Stakeholders should also be involved in this meeting as well to help you collect ideas regarding what could become a potential risk. All who are participating should look at past projects, what went wrong, what is going wrong in current projects and what everyone hopes to achieve from what they learned from these experiences. During this session, you’ll be creating a sample risk management plan that begins to outline risk management standards and risk management strategies.
Evaluate the Potential Risks Identified
A myriad of internal and external sources can pose as risks including commercial, management and technical, for example. When you’re identifying what these potential risks are and have your list complete, the next step is organizing it according to importance and likelihood. Categorize each risk according to how it could impact your project. For example, does the risk threaten to throw off timelines or budgets? Using a risk breakdown structure is an effective way to help ensure all potential risks are effectively categorized and considered. Use of this risk management plan template keeps everything organized and paints a clear picture of everything you’re identifying.
Assign Ownership and Create Responses
It’s essential to ensure a team member is overseeing each potential risk. That way, they can jump into action should an issue occur. Those who are assigned a risk, as well as the project manager, should work as a team to develop responses before problems arise. That way, if there are issues, the person overseeing the risk can refer to the response that was predetermined.
Have a System for Monitoring
Having effective risk management companies plans includes having a system for monitoring. It’s not wise to develop a security risk management or compliance risk management plan, for example, without having a system for monitoring. What this means is there’s a system for monitoring in place to ensure risk doesn’t occur until the project is finished. In doing so, you’re ensuring no new risks will potentially surface. If one does, like during the IT risk management process, for example, your team will know how to react.
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How to Think About (and Reduce) Risk When You’re Starting Your Own Business
I understand that many of you are in startup mode or still contemplating whether to embark on the risky business of becoming an entrepreneur. My goal for the next few years is to encourage waverers to start their own business, and to mentor some of those who are on their way to become millionaires.
This article will include examples of the risks I took and how I overcame them as presented in my book, “ Raise the Bar Change the Game .” I hope you can get some benefit from some real-world examples. Let’s start with four questions to help you think about risk well before you launch.
What’s your tolerance for risk?
It is this idea of risk that is generally the first barrier for budding entrepreneurs. Not only for entrepreneurs, but investors too. A bank or fund manager will always ask you what is your appetite for risk; is it low, medium, or high? If your risk tolerance is low, don’t start a business—because most days will contain some risk or other.
What’s your business idea?
Before you can start a company, you need a business idea . and I always tell people I mentor not to get stuck on trying to find a new and disruptive idea. It’s great if you can, of course, but in my opinion, most of the great ideas have already gone. Unless you have invented something revolutionary, stick with a business model that involves something you are passionate about and do it better than anyone else.
Being passionate about an idea is crucial as it is this that keeps you going through all the inevitable knocks and disappointments. Learn to love your customers and not your product or service. You need to go the extra mile for them, and nothing will be too much trouble.
How will you fund your business right in the beginning?
In the early days, you may have insufficient money and be in a comfortable job with a regular income . This is a good time to check on your partner’s appetite for risk too, as you will need their support. Especially since you may need to have a lower standard of living for some time—they need to be on board.
But don’t use lack of money as an excuse not to start the business—you can always get money either from friends, family, or credit cards . Making sure your customers pay you before you have to pay your suppliers is another way. The important thing is to surround yourself with positive people rather than naysayers who will be quick to throw cold water on your idea and encourage you not to start.
What’s your plan B?
You must have a risk mindset. I always found it helpful to ask, “What’s the worst that can happen if I fail?” The answer was that I’d be back where I started. If I went bust, I could always pick myself up and start over again. I developed a plan B in case things went wrong and I could change my strategy if I needed to.
Finally, I asked myself how I’d feel if I didn’t go forward. Would I regret it for the rest of my life? One of my many mantras is that I have no regrets at all in life, nor will I ever. Never look backward , look forward . Have the courage of your convictions and generate your own self-confidence by ticking off goals and achievements. Recognize that failure is good—provided you learn from it—and always remain positive and mix with positive people.
So what you can you do to reduce the risk of starting your own business?
Write a Lean Business Plan
Running a business is much less risky if you have a business plan. You can use your plan as a framework for making a risk assessment against every business goal. From there, because you’ve thought through and are aware of all the risks you might encounter, you can strategically mitigate them and adopt a plan B quickly if necessary.
Your business plan can be a Lean Plan , meaning that it doesn’t need to be lengthy. If you’ve heard of a Business Model Canvas, a Lean Plan is a much more useful alternative. You can use it as a jumping off point if you end up needing to write a formal business plan for a bank loan or investor pitch.
For more on what should be included in your Lean Plan, check out this article . If you’re looking for some help getting started, use the Bplans free downloadable Lean Plan Template .
Beyond business planning basics, like telling what your company does and explaining your business model and how you’ll get customers, take some time to set goals and milestones . If you’re just getting started, think about your top five goals for your first year, and a BHAG (big, hairy, audacious goal)—a dream well into the future where you visualize what your company would ideally look like that seems impossible today.
Be sure to articulate how you plan to achieve those goals and make them SMART : specific, measurable, achievable, results-orientated, with a timeline
Hire the best people
You can’t do everything yourself—if you’re honest, you just don’t have the skills. But until you can afford to hire help, you will have to get along on your own. If you have a friend or partner you trust with complementary skills—such as being a details person if you are a visionary, or vice versa—this is an ideal way to split the shareholding 50-50 percent from the beginning.
When I was starting out, I was fortunate that my wife brought the soft skills to my business, and that she was also willing to be an important sounding board for me. I am a visionary—not interested in day to day management—so now I have someone in each company who runs it on a day to day basis so I can do the strategic thinking. It’s important to understand your weaknesses.
Hire people who are more intelligent and clever than you. They will bring in new ideas and skills. Do not be so proud that you can’t listen to new ideas. Make sure you take interviewing seriously and consider how they would fit in with the culture of the company. Then look at their past performance for clues of future performance.
Focus on profits and cash above all
Nothing lasts forever. Your business’s product or service has a life cycle, so from the beginning, you should anticipate the risk of competitive disruption or replacement.
As your looking at your financials, remember that profits are important, but cash is king . If you don’t have a background in finance, learn how to read basic management reports: your balance sheet , your profit and loss statement , and your cash flow statement . You can have plenty of business and be generating large profits, but if your customers are not paying their bills on time, you can run out of cash and so go bust.
Even the healthiest of businesses ultimately can run out of cash without seeing it coming. I once went to my bank and asked for $50,000 to buy one of my competitors. I knew it would only take a year to show a return on investment—a slam dunk, if you will.
My bank turned me down and put me into incubation where they controlled all my cash movements until I had repaid all my loans from them. My brother lent me the money, and I did get my money back in a year, but the bank had seen that I was spending too much on my other business. The more successful it got, the less cash I had available to service my debts. They saw an additional loan as a bigger risk than they wanted to take. But I knew my cash flow in and out, and I knew a solid investment opportunity when I saw it.
So, learn to read your cash flow position daily, weekly, or monthly. Make it a habit.
You will be faced with many challenges during the life cycle of your company, so keep your eye on your vision—the big picture—and keep in touch with what the competition is doing.
My biggest risk was to enter the Eastern Bloc prior to the fall of the Berlin Wall in 1989 and create business leaders in five countries, giving them a controlling share in each business. I lost a great deal of money but kept at it, and it took seven years to break even.
Along the way I faced bankruptcy, staff leaving and going to work for the competition, getting kidnapped and held up by the Russian mafia, deaths of significant staff members including my wife, and even adopting a child in the midst of all this.
But my appetite for risk is high, and my self-belief, coupled with my great team, has enabled us to remain market leaders throughout. You can do the same!
Brian Marcel
Brian Marcel , author of Raise the Bar, Change the Game , is the founder and chairman of International Bar Code System (IBCS) Group, known for bringing the game-changing barcode technology to a part of the world in desperate need for change. Since its start in 1988, he has built the IBCS Group into the top enterprise mobility integrator in Central and Eastern Europe. With more than 35 years of hands-on, high-level senior and corporate entrepreneurial experience, Marcel—known as “Mr. Mentorvator”—has helped seven entrepreneurs become millionaires. His goal is to do the same for ten more people in the next five years.
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How to reduce risk by planning your growth
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Karl Wirtz, President, WG Pro-Manufacturing
Karl Wirtz had been struggling to keep a temporary employment agency afloat during the recession of the early 1990s. One day, he was dismayed to learn his last big customer was preparing to outsource packaging work rather than continue to use Wirtz’s temporary employees.
If he lost the contract, his agency would soon be out of business. That’s when he had the idea of pitching the customer on outsourcing the packaging work to him. Within a few weeks, WG Pro-Manufacturing was born.
Wirtz was just 29 years old when he took the leap to set up his packaging business. He rented a warehouse, brought in equipment and hired staff—all on the strength of that one contract.
“I just bulled ahead and built this plant—signed leases, created the company and hired people,” he says. “I remember about six months into it, I’m walking through the plant and a forklift drove by me. I stopped and looked at that forklift and thought: I’m in a plant I own, holding a clipboard and checking efficiencies on a production line. Wow.”
Wirtz says he was fearless in the early years of building WG Pro-Manufacturing, a Brampton, Ontario, company that packages products on behalf of manufacturers and also operates a bakery. He now employs 245 workers and will generate sales of about $16 million this year from five production locations.
Carefully research growth opportunities
“When you’re in your twenties, you’ve kind of got a superman mentality,” he says. “Risk didn’t bother me at all. I was very adventurous.”
Now at age 53, Wirtz admits he’s a different man. He’s still eager to grow his business, but with so much more on the line, he’s become more cautious. His family, employees, suppliers and customers are all counting on him to make the right decisions.
“You think: I don’t want to make a mistake and risk the downward cycle of our business, or risk having to lay off employees, or risk going out of business, God forbid,” he says. “So it’s amazing how fear tends to be very present in my mind where it wasn’t when I was much younger.”
Wirtz’s change in mindset hasn’t stopped him from embarking on a series of growth initiatives, including purchasing the bakery and targeting the U.S. market for its wares. He’s also opened a new packaging plant in Calgary to serve the Western Canadian market.
He’s found the confidence to make these bold moves by carefully researching the best growth opportunities available to his company and then planning how to capitalize on them. He’s done so by following a methodology devised by BDC’s Growth Driver Program, which is designed to help ambitious CEOs like Wirtz grow their companies faster and better.
Skylar Clarine is a fact-checker and expert in personal finance with a range of experience including veterinary technology and film studies.
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Risk management has always been an important tool in running any business, particularly when a market experiences a downturn. In any economic environment, an unexpected surprise can destroy your business in one fell swoop if you didn’t have the right risk management strategies in place to prevent, or at least mitigate, the damage from that risk.
External risks are out of your control. These include, but are not limited to, interest rates , exchange rates , politics, and weather. Internal risks are in your control and include information breaches, noncompliance, lack of insurance, growing too fast, and many more.
The following are some of the areas that business owners can focus on to help manage the risks that arise from running a business.
1. Prioritize
The first step in creating a risk management plan should always be to prioritize risks and threats. You can do so by using a somewhat universal scale based on each risk's likelihood of happening:
- Very likely to occur
- Some chance of occurrence
- Small chance of occurrence
- Very little chance of occurrence
Of course, a risk that falls into the top category should take priority over the others, and a plan to prevent, or at least mitigate, these risks should be put into place. However, there is a catch. If a risk falls into a lower rung yet presents the potential for more financial damage, then it should take priority.
2. Buy Insurance
Assess liabilities and legal regulations to determine what types of insurance will be required for your business. This might include:
- Life insurance
- Disability insurance
- Professional insurance
- Completed operations insurance
Buying insurance allows you to transfer your risk to insurance companies for a small cost, especially when compared to the potential cost of uncovered risk.
3. Limit Liability
If you’re a sole proprietor , limit your liability by changing to a corporation or limited liability company (LLC). In this type of structure, the owner of the business is not held personally liable for the company's debts or other liabilities.
4. Implement a Quality Assurance Program
A good reputation is imperative if you want a sustainable business. Customer service is key to success. Be sure to test your products and services in order to assure the highest quality. By testing and analyzing what you’re offering, you will have an opportunity to make necessary adjustments. Also, strongly consider taking it a step further by evaluating your testing and analyzing methods.
5. Limit High-Risk Customers
If you’re just getting started, immediately implement a rule that customers with poor credit must pay ahead of time, which will avoid complications down the road. In order to do this, you must have a procedure to identify poor credit risks far in advance.
6. Control Growth
This has everything to do with employee training. If you’re selling products and/or services and you set lofty goals for employees, they might be tempted to take unnecessary risks, which can lead to a bad reputation for your company. Instead, train your employees to focus on quality, not quantity. By doing so, you will avoid the risk of declining sales due to high-pressure sales tactics that customers don’t appreciate.
On a related note, while innovation is a key to success, you don’t want to innovate too fast. If your company is constantly relying on the next innovation for growth, then a hiccup is inevitable because not all new products and services will be successful.
7. Appoint a Risk Management Team
If you want to save capital by not having to hire an outside firm, and there is time available, you can appoint current employees to head a risk management team. However, this would only be wise if someone within the team has experience in this area and can act as a leader.
Otherwise, paying for an outside risk management team will be a worthwhile investment. They will be able to map out all the risks to your company based on your type of business and set up strategies to implement immediately if any of those risks become a reality. This should lead to the prevention, or mitigation, of those risks and threats.
The Bottom Line
Risk management is a form of insurance in itself and is an imperative step for sustainable success. The seven steps above should get you started in shaping a risk management plan, but they are just starting points. A deep dive into your business and industry will help you better shape a risk management plan that could save the business you worked hard to create.
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Risk Analysis - A Key Section of Your Business Plan
A professional business plan should include a discussion of business risks and challenges. Although every possible risk will not be identified and addressed, the business plan should discuss the most important ones and indicate how management will mitigate their potential impact on business operations. Identification and discussion of business risks and challenges, and having strategies in place to deal with them strengthens the plan, enhances management’s credibility and increases the confidence potential investors will have in the business plan and its financial projections. Being upfront and discussing potential business risks, rather than glossing over them, builds confidence in the company’s management.
Risk analysis is particularly important for start-ups and small businesses, whose objective in writing a business plan is often to secure capital to start the business, to secure additional working capital for operations or to raise money for expansion. Since they often have more limited operating histories, entrepreneurs and small business managers have not yet demonstrated their ability to cope with business risks. Potential equity investors and lenders expect their business plans to provide assurance that management recognizes these challenges and is prepared to deal with them.
Identification of Risks
The first step in the enterprise risk analysis process is to identify the internal and external threats that may stand the way of achieving planned results. For convenience, these threats can be classified into three broad categories. These are “general business risks” that are faced by all companies, “industry-specific risks” that are faced by companies within the industry and “company-specific risks” faced by the company itself. Within this framework, specific potential risks within each category can be identified and addressed. The major challenges are those that may adversely affect the company’s financial condition, forecast financial results and liquidity.
General Enterprise Business Risks
General enterprise business risks are shared by most businesses but their significance varies by company. In the case of start-ups or early stage companies, management must gain experience in managing operational, marketing and other problems that will arise. Potential threats include unexpected problems that may develop in quality control, distribution, marketing and promotion and other areas. Start-ups and early stage companies must also build relationships with customers and attract customers from competitors. Small but established companies have already gained experience dealing with these problems, reducing this business risk. The risk analysis section should mention these dangers and uncertainties , and the business plan sections relating to each risk category should have strategies to deal with them.
Although all companies face uncertainties associated with the general economic environment, some enterprises are less business cycle sensitive than others. The economic cycle risk of a food company, for example, may be less of a concern than is the case of a construction company. Banks are exposed to interest rate risks but many have in place strategies to mitigate those uncertainties. Some businesses are exposed to challenges posed by higher gasoline prices, while realtors are exposed to risks relating to lower home sales. The important thing is to identify which of these general business challenges could impact the business and have strategies to deal with them. Companies should have strategies to stabilize their business and continue to succeed despite unexpected changes in the economic environment.
The business faces dangers associated with natural disasters. These relate to changes of the weather and their consequences, such as time lost in production and distribution and resultant economic downturns that depress sales.
In the case of companies that offer proprietary products, there are uncertainties associated with ownership of intellectual property. It is important to have trademarked brand name and patent protection to prevent replication of company products or services, which could have an adverse effect on the company and affect the outcome of intellectual property rights disputes.
Industry Specific Risks
The risks and challenges section of the business- or project plan should discuss industry-specific risks. One of those challenges is industry competition. Although it is expected that competition will be mentioned as one of the risks, enterprise strategies for competing effectively should be outlined in the competition and marketing plan sections of the business plan. In the competition section, major competitors and their strengths and weaknesses are discussed, as well as the company’s strategic positioning. In the marketing plan, the company’s action plans for overcoming the competition are outlined.
Some types of businesses are more subject to litigation risks than others. Uncertainties are especially high for companies selling internally consumed products such as food, beverages and pharmaceuticals. Any business that involves customers physically visiting its place of business is vulnerable to “slip and fall” or other types of litigation. Even professionals who have no on-site business can be sued for alleged “errors and omissions” in their advice. The litigation risk is discussed and measures to reduce it, including safety precautions and insurance coverage, can be described to indicate that the risk is known and has been addressed. The company should include the cost of liability insurance in the financial forecasts.
Company Specific Risks
In the case of start-ups, there are uncertainties associated with raising start-up capital and maintaining sufficient funding. In many cases, operations cannot commence until sufficient funds are raised to fund the acquisition of property, plant and equipment and initial working capital requirements.
The risks associated with fixed cost structure of the business are company-specific because they vary from high to low, depending on the nature of the business. In some businesses such as manufacturing, there are high fixed costs because of the large investments in equipment and facilities. Companies with high fixed costs achieve profitability only after the volume of business builds to a point that the fixed costs are covered. Thus, any problems in achieving and maintaining sales levels beyond the breakeven revenue level would have an adverse impact on operating results. The risks and challenges section of the project plan should refer to the marketing section, where strategies to achieve required volumes are discussed. In a service business, this challenge is not as significant, as more costs are variable and can be more easily managed as business volume changes.
All companies have uncertainties associated with recruiting, retaining and managing human resources. In the management and human resources section of the business plan, the company should discuss plans to recruit additional key employees and senior management that are critical to achieving its forecast and operational goals. The risk management section should mention that the company may or may not be successful in obtaining experienced professionals in web site development, operations and other areas but reference sections of the business plan where strategies are outlined to address this issue.
In the case of start-up companies, success of the enterprise will be dependent on the continuing services of only one or two key managers who provide executive leadership. If for any reason these managers were not to fulfill their current leadership roles, the ability of the Company to achieve its forecast results would be adversely affected.
It is important that the business and financial risks be identified and discussed in the enterprise business plan. The informed reader, especially one who may be asked to provide capital for the business, wants to be comfortable that the management has considered potential risks and developed strategies to deal with them. In the process of developing the business plan, identification of potential risks will not only result in a better plan but also better prepare management to successfully manage the enterprise. Readers will have a less favorable view of a written project plan that does not include a risk analysis section than one that demonstrates that management is aware of uncertainties and is prepared to take actions to address any threat.
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Why Are Major Risks in the Business Plan?
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Purpose of Financial Analysis
Strategic analysis of a company, what is 'systems thinking' in business.
- The Purpose of Analytical Business Reports
- Fundamental Principles of Strategic & Business Planning Models
Risk factors are possible events that, should they happen, could cause a company’s revenues or profits to be lower than what the owner had forecast. They are a standard part of a thorough business plan, whether the plan is designed for internal use by the management team or will be presented to outside investors. Risk factors are also called threats, because they threaten the business’s success and in extreme circumstances even its survival.
Encourages Contingency Planning
The risk factors section of the business plan should go beyond simply listing what might go wrong. Being aware of what could negatively impact the company is important, but the real value of including risk factors is the business owner’s thinking process to determine how she would mitigate the risks to minimize the financial damage to her company. The thinking process is referred to as contingency planning, also know as “what if” analysis. The business owner will make changes to her marketing strategies, operations and financial management in response to these risks becoming a reality.
Focus on the Business Environment
A company should have a system in place to gather information about emerging or potential risks. Monitoring competitors on an ongoing basis is one aspect of this system. The decisions a company’s competitors make pose threats, because they are designed to give the competitors a stronger market position by taking potential business away from the company. Risk factors are not just considered at the time the company is preparing its annual business plan -- they are year-round considerations, because new threats emerge throughout the year.
Alert Potential Investors
A venture capital firm or angel investor that is contemplating putting money into a business enterprise must assess the risk that the company’s financial results will be lower than forecast. The value of the company grows as the revenues and profits of the business grow. The risk factors alert the investor to the fact there is always a possibility of losing part or all of the money he puts into the company. If the investor believes the risks could severely hurt the company should they occur, he may decline to make the investment. As a practical matter, sophisticated investors do their own risk analysis prior to putting money in a company, but the fact the management team is aware of, and has strategies for dealing with, the risks can make the investors more confident about the management team’s abilities.
Moving Forward Confidently
Analyzing risk factors allows the management team to be confident it is ready for whatever business environment the company may face in the upcoming year and beyond. The team has strategies in place that can be quickly implemented to minimize the damage caused by threats from competitors or changes in the overall economy. The management team assesses which risks are most likely to become actual threats and which have a very low likelihood of occurring. Owners of companies will always have external threats to worry about, but the risk analysis process helps reduce the number of worries to those that have the potential to negatively impact their revenues or profits.
- Inc.: Managing Risk in a New Venture
Brian Hill is the author of four popular business and finance books: "The Making of a Bestseller," "Inside Secrets to Venture Capital," "Attracting Capital from Angels" and his latest book, published in 2013, "The Pocket Small Business Owner's Guide to Business Plans."
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Do You Really Need a Business Plan?
The art of storytelling, from net margin to sales.
Why is a business plan important?
- Who will the reader be?
- What do you want their response to be?
Four Reasons to Write a Business Plan
1. To raise money for your business
2. To make sound decisions
3. To help you identify any potential weaknesses
4. To communicate your ideas with stakeholders
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How to Write a Business Plan for Your Small Business
9 Reasons Why Every Company Is in Need of a Risk Management Plan Marine Agency -->
Every business takes risks. However, these risks need to be managed in order to minimize the impact of risks that don’t turn out well. For this reason, every business is in need of risk management and needs to have a suitable risk management plan.
Table of Contents
Benefits of Risk Management For Businesses
Risk management plans offer several benefits that make them a worthwhile endeavor for every business. For example, risk management plans best help companies to identify the potential risks they may face. Being aware of these risks allows businesses to make plans to avoid specific risks or deal with them when they arise.
Building a risk management plan also makes financial sense because it allows businesses to prepare themselves financially for the most likely problems. It may also increase a business’s appeal to lenders. In addition, risk management plans protect the company’s resources by allowing the company to prioritize risks and plan to deal with each possibility. This conserves important resources, allowing the company to focus on more important tasks such as accomplishing sales goals and more.
Risk management in business can improve the company’s brand by letting employees, customers and other businesses know that the company is responsible and resourceful. Furthermore, risk management plans give companies a chance to gather important information that may be useful for other purposes as well.
Three Ways Risk Management Plans Improve Your Company
Risk management plans improve your company’s health, integrity and resilience in many ways. Here are three ways a solid risk management plan will bolster your company.
A Risk Management Plan Makes for Consistent and Efficient Operations
In the process of risk management planning, companies often discover risks that would cause their business to operate inconsistently or inefficiently. For example, if a company discovers that is relies on a specific part to produce a key product and that the part in question has always been obtained from the same source, the company has discovered a risk. If the source suddenly dries up, the company cannot operate efficiently. To manage this risk, the company needs to find alternative sources for the part to use as a backup.
A Risk Management Plan Leads to More Satisfied Customers
Risk management planning best helps a company to improve nearly aspect of its business operations, from the development of products and services to the company’s finances. All of these improvements allow the company to operate more effectively, which in turn improves customer satisfaction.
A Risk Management Plan Gives You a Healthier Bottom Line
As a business engages in the risk management process of planning, it will discover a significant amount of information that may reveal operational inefficiencies, opportunities to save costs and opportunities to avoid or deal with risks that could compromise the company’s finances. Identifying and resolving each of these issues will improve the company’s bottom line.
The Role of Insurance
Risk management plans should always include provisions for insurance. Insurance coverage is one of the best ways to reduce a risks impact on the company. The type of insurance included should be based on the nature of the business and the specific risks it faces.
Key Takeaways
- Risk management planning offers company’s a wide variety of benefits, from protection of resources to an opportunity to a better reputation for the company’s brand.
- Taking a risk management approach also improves the consistency and efficiency of operations, leads to more satisfied customers and boosts the company’s bottom line.
- The issue of insurance should always be included in the risk management planning process.
Marine Agency offers a wide variety of insurance coverage to meet the needs of different companies. Please contact our team today to learn more about the importance of a risk management plan, general risk assessment or to know about our business insurance policies .
**The original post can be read below. June 2015.**
In business, why do we manage risk ? The simple answer is, risk taking is a part of every business, but it is important that a company knows how to deal with the impact of the negative risks. This makes the need for risk management in business apparent. Risk management plans help a business determine what their risks are in order to reduce their likelihood and provide a means for better decision-making in order to avoid future risk. The importance of risk management in business cannot be understated. Keep reading to learn why risk management plans are an important element of successful businesses. We’ve broken it down into the 6 most important reasons for risk management .
A risk management plan helps companies identify risk
It is important for a business to identify potential risks. When a business is aware of the potential risks that are associated with their business, it is easier to take steps to avoid them. Knowing the risks makes it possible for the managers of the business to formulate a plan for lessening the negative impact of them. Also, once the risks are identified, managers will be able to analyze them and make a logical decision regarding how to deal with them. According to the Huffington Post , there are four main types of risk about which a business needs to be aware.
- Market risk is the risk that is associated with the potential for the value of the assets of a business to decrease in due to external factors such as interest rates, foreign exchange rates, and commodity prices.
- Credit risk refers to the losses that occur when a debt that is owed is not paid to the company.
- Internal fraud
- External fraud
- Employment practices
- Client and business practices
- Business continuity practices
- Reputational risk develops from the possibility of damage to the company’s reputation due to both internal and external factors.
Having a risk management plan is fiscally prudent
Businesses that have risk management plans in place can more easily be financially prepared when a problem arises. Often, lenders will be more willing to increase credit limits or extend loans to companies that have a risk management plan in place.
A risk management plan protects a company’s resources
A risk management plan not only identifies risks, it also makes it possible for a company to prioritizes them. This allows a company to acceptably plan for the risks and respond to them more quickly and appropriately. This course of action saves the company time, money, and physical resources and allows workers to spend more time working at tasks that are related to the business.
A risk management plan improves a company’s brand
When a company is proactive and creates a risk management plan, it sends a positive message about the business. Employees feel confident that they are working for a resourceful and responsible company, and customers have assurance they are doing business with a company that is proactive and professional. Overall, having a risk management plan shows that a company is reputable and holds itself to a high standard.
A risk management plan can help a company discover reusable information
Risk management requires a collaborative effort and involves many people. The information that is gathered and learned through the process of developing a risk management plan can be applied to situations that arise well after the plan was developed. Therefore, those who are impacted by the plan do not need to start from scratch whenever an issue needs to be resolved.
Risk management plans and insurance
Every risk management plan that is created should include insurance as one of its elements. Part of creating a risk management plan is determining how to reduce the impact a risk will have on a company. Having appropriate insurance in place is one way to help defray the effect of negative risks. Some examples of businesses insurance that is helpful to include in a risk management plan include:
- Day spa and salon insurance can cover a salon owner in the event a client’s hair or scalp is damaged during a processing treatment.
- Tattoo shop insurance can cover a shop owner in the event an artist makes an irreparable mistake during a tattooing.
- Performers insurance covers a performer if an audience member is injured during a performance
- Martial arts studio insurance protects a studio owner if a student is injured during instruction.
- Camp insurance can protect a camp owner if anyone is injured on the camp’s premises.
All businesses should have a risk management plan that includes insurance coverage.
Marine Agency provides insurance coverage to fit the needs of every business. Contact us today to see how we can help your business. We’d love to hear from you!
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20 Reasons Why You Need a Business Plan in 2023
- Written by Dave Lavinsky
What is the purpose of a business plan and why are business plans so important? Below are our top 20 reasons why you need a business plan.
2. To establish business milestones. The business plan should clearly lay out the long-term milestones that are most important to the success of your business. To paraphrase Guy Kawasaki, a milestone is something significant enough to come home and tell your spouse about (without boring him or her to death). Would you tell your spouse that you tweaked the company brochure? Probably not. But you’d certainly share the news that you launched your new website or reached $1M in annual revenues.
3. To better understand your competition. Creating the business plan forces you to analyze the competition. All companies have competition in the form of either direct or indirect competitors, and it is critical to understand your company’s competitive advantages. And if you don’t currently have competitive advantages, to figure out what you must do to gain them.
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4. To better understand your customer. Why do they buy when they buy? Why don’t they when they don’t? An in-depth customer analysis is essential to an effective business plan and to a successful business. Understanding your customers will not only allow you to create better products and services for them, but will allow you to more cost-effectively reach them via advertising and promotions.
5. To enunciate previously unstated assumptions. The process of actually writing the business plan helps to bring previously “hidden” assumptions to the foreground. By writing them down and assessing them, you can test them and analyze their validity. For example, you might have assumed that local retailers would carry your product; in your business plan, you could assess the results of the scenario in which this didn’t occur.
6. To assess the feasibility of your venture. How good is this opportunity? The business plan process involves researching your target market, as well as the competitive landscape, and serves as a feasibility study for the success of your venture. In some cases, the result of your planning will be to table the venture. And it might be to go forward with a different venture that may have a better chance of success.
7. To document your revenue model. How exactly will your business make money? This is a critical question to answer in writing, for yourself and your investors. Documenting the revenue model helps to address challenges and assumptions associated with the model. And upon reading your plan, others may suggest additional revenue streams to consider.
8. To determine your financial needs. Does your business need to raise capital? How much? One of the purposes of a business plan is to help you to determine exactly how much capital you need and what you will use it for. This process is essential for raising capital for business and for effectively employing the capital. It will also enable you to plan ahead, particularly if you need to raise additional funding in the future.
9. To attract investors. A formal business plan is the basis for financing proposals. The business plan answers investors’ questions such as: Is there a need for this product/service? What are the financial projections? What is the company’s exit strategy? While investors will generally want to meet you in person before writing you a check, in nearly all cases, they will also thoroughly review your business plan.
10. To reduce the risk of pursuing the wrong opportunity. The process of creating the business plan helps to minimize opportunity costs. Writing the business plan helps you assess the attractiveness of this particular opportunity, versus other opportunities. So you make the best decisions.
11. To force you to research and really know your market. What are the most important trends in your industry? What are the greatest threats to your industry? Is the market growing or shrinking? What is the size of the target market for your product/service? Creating the business plan will help you to gain a wider, deeper, and more nuanced understanding of your marketplace. And it will allow you to use this knowledge to make decisions to improve your company’s success.
12. To attract employees and a management team. To attract and retain top quality talent, a business plan is necessary. The business plan inspires employees and management that the idea is sound and that the business is poised to achieve its strategic goals. Importantly, as you grow your company, your employees and not you will do most of the work. So getting them aligned and motivated will be key to your success.
13. To plot your course and focus your efforts. The business plan provides a roadmap from which to operate, and to look to for direction in times of doubt. Without a business plan, you may shift your short-term strategies constantly without a view to your long-term milestones. You wouldn’t go on a long driving trip without a map; think of your business plan as your map.
14. To attract partners. Partners also want to see a business plan, in order to determine whether it is worth partnering with your business. Establishing partnerships often requires time and capital, and companies will be more likely to partner with your venture if they can read a detailed explanation of your company.
15. To position your brand. Creating the business plan helps to define your company’s role in the marketplace. This definition allows you to succinctly describe the business and position the brand to customers, investors, and partners. With the industry, customer and competitive insight you gain during the business planning process, you can best determine how to position your brand.
16. To judge the success of your business. A formal business plan allows you to compare actual operational results versus the business plan itself. In this way, it allows you to clearly see whether you have achieved your strategic, financing, and operational goals (and why you have or have not).
17. To reposition your business to deal with changing conditions. For example, during difficult economic conditions, if your current sales and operational models aren’t working, you can rewrite your business plan to define, try, and validate new ideas and strategies.
18. To document your marketing plan . How are you going to reach your customers? How will you retain them? What is your advertising budget? What price will you charge? A well-documented marketing plan is essential to the growth of a business. And the marketing strategies and tactics you use will evolve each year, so revisiting your marketing plan at least annually is critical.
19. To understand and forecast your company’s staffing needs. After completing your business plan, you will not be surprised when you are suddenly short-handed. Rather, your business plan provides a roadmap for your staffing needs, and thus helps to ensure smoother expansion. Importantly your plan can not only help you understand your staffing needs, but ensure your timing is right as it takes time to recruit and train great employees.
20. To uncover new opportunities. Through the process of brainstorming, white-boarding and creative interviewing, you will likely see your business in a different light. As a result, you will often come up with new ideas for marketing your product/service and running your business. It’s coming up with these ideas and executing on them which is often the difference between a business that fails or just survives and one that thrives.
What is a Business Plan?
A business plan is a document that details your business concept and strategy for growth.
What is the Purpose of a Business Plan?
A business plan helps guide your company's efforts and, if applicable, gives investors and lenders the information they need to decide whether or not to fund your company. A business plan template helps you to most easily complete your plan.
Why Do You Need a Business Plan?
A business plan provides details about your company, competition, customers and industry so that you make the best possible decisions to grow your company.
What is the Importance of a Business Plan?
The 3 most important purposes of a business plan are 1) to create an effective strategy for growth, 2) to determine your future financial needs, and 3) to attract investors (including angel investors and VC funding ) and lenders.
Why is a Business Plan Important to an Entrepreneur?
Business plans help entrepreneurs take their visions and turn them into tangible action plans for success.
About Growthink
Since 1999, Growthink’s business plan experts have assisted more than 4,000 clients in launching and growing their businesses, and raising more than $2.5 billion in growth financing.
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