Many businesses face risks that could harm their company. Financial loss, lawsuits, product liability, and employee safety are just a few of the risks that businesses face on a daily basis. By understanding the risks your business is facing, you can take steps to protect your company from potential harm.
One way to protect your business is to learn about risk management. Risk management in business is the process of identifying, analyzing and then taking steps to mitigate or lessen the impact of business risks. Preparing for risks in business can help you avoid or lessen their impact should they occur. Learn five common risks that businesses face today.
Risk #1: Financial Loss
Poor money management, overspending, debt—businesses can suffer financial losses due to a variety of reasons. Risk management in business includes understanding the different types of financial risks to avoid. Types of financial risks include the following:
- Market Risk: This is the risk that changes in the market will have a negative impact on a company’s financial situation. For example, a business that relies on the stock market may suffer losses if there is a market crash.
- Credit Risk: This is the risk that a company will not be able to repay its debts. This can happen if a business takes out loans and then is unable to make the payments.
- Liquidity Risk: This is the risk that a company will not have enough cash on hand to meet its financial obligations. This can happen if a business has too many expenses and not enough revenue coming in.
How to Prepare: There are a few ways that businesses can mitigate financial risks. One way is to create a budget and stick to it to prevent overspending. Another way is to diversify your income sources, meaning that revenue comes in from multiple sources, such as sales, investments, and interest.
Multiple revenue sources help reduce the impact of a financial loss from one source. Businesses can also purchase insurance to help protect them from potential financial losses.
Risk #2: Natural Disasters
Natural disasters can strike at any time and can have a devastating impact on your business. After a disaster hits, about 25% of businesses do not reopen. If you’re located in an area that’s susceptible to hurricanes, floods, or earthquakes, you need to have a plan in place to protect your business.
How to Prepare: The best way to prepare for a natural disaster is to invest in disaster insurance and a contingency plan to relocate your business if necessary. Disaster insurance can help you cover the cost of repairs or replacement of damaged property to help your business get back on its feet again, and it’s a vital aspect of risk management in business.
Risk #3: Compliance Issues
Compliance problems can lead to hefty fines and penalties, and can even put your business at risk of shutdown. For instance, these are only a few of the many compliance standards businesses must follow:
- OSHA: The Occupational Safety and Health Administration (OSHA) sets standards for employee safety in the workplace. Businesses that violate OSHA will face a maximum fine of $14,502 per violation.
- HIPAA: The Health Insurance Portability and Accountability Act (HIPAA) sets standards for how patient information can be stored and accessed. Businesses that do not comply with HIPAA standards can be fined $100 per record or up to $25,000.
- Environmental: There are many environmental regulations businesses must follow, such as those set by the Environmental Protection Agency (EPA). For example, polluting water results in a fine of $2,500–25,000 per day.
How to Prepare: Compliance and risk management in business go hand in hand. One way to mitigate compliance risks is to develop a compliance program for your business. This program should include policies and procedures that employees must follow to ensure compliance with regulations. Educating employees about the importance of compliance and the potential penalties for non-compliance can help reduce the risk of compliance issues.
Risk #4: Outdated Technology
As technology evolves, so too does the risk of obsolescence. Outdated technology is common among businesses with 50% of employees reporting that their office uses outdated technology. If you’re relying on outdated technology, you could find yourself at a disadvantage to your competitors who are using more modern, efficient systems. And you’re an easier target for cyberattacks.
How to Prepare: To stay ahead of the curve and have a strong risk management plan for your business, it’s important to regularly evaluate your technology needs and make sure that you’re investing in the latest and greatest. Technology should be included in your budget with a timeline for implementation.
Risk #5: Data Breaches
Data breaches are skyrocketing, and the average cost of a data breach has risen to $4.35 million. As a business owner, you’re responsible for safeguarding your customers’ personal and financial information. If this data falls into the wrong hands, it could be used to commit fraud or identity theft.
There are two main types of data breaches:
- Internal: An internal data breach happens when an employee or contractor intentionally or unintentionally discloses confidential information.
- External: An external data breach occurs when hackers gain access to your systems and steal data.
How to Prepare: Whether the data breach is accidental or intentional, your business risks losing a large sum of money. To protect your customers and your business, it’s necessary to have strong security measures in place for your risk management business strategy. If a cyber breach does occur, the best way to alleviate the costs of a data breach is through cybersecurity insurance.
Cybersecurity insurance can help your business recover from the damages of a data breach, including the costs of notifying customers, credit monitoring, and legal fees. At Bethany Insurance, our team of insurance experts can help you find the right cybersecurity insurance policy for your business. Speak to one of our representatives today to learn more!
