Protecting your business: Plan ahead, bad things will happen.

There are countless risks you will face as you continue to grow your business. There are perhaps countless solutions to plan for those risks, and at a high level, one could categorize risk mitigation strategies. Reduce risk, transfer risk, strategically accept risk, ignore risk.

• Reduce risk: You and your team are likely aware of many external risks that should be considered, but also consider internal risks such as the loss of a key person on your team. One way to reduce risk could be to have multiple people understand certain processes so if one person is impacted it is not as devastating as it would have been otherwise since someone else can step up relatively quickly.
• Transfer risk: This can often be accomplished through a partnership with one or more outside entities. Think about dual sourcing in your supply chain or partnering upstream or downstream in the value chain. Also, this is where your insurance comes into play, with Business Income insurance, Liability Insurance, Key Person Life and Disability insurance, Overhead Expense Insurance, and Disability buyout insurance. All, some, or none of these may be a good fit for your business, but transferring some or all of a given risk could be the difference between continued operation or insolvency.
• Strategically accept risk: You may identify a risk and determine that mitigation is not feasible at this time, so you are going to intentionally accept it and plan for it. This could be allocating some cash reserves for a potential negative impact to cash flow or working on developing a new product if a current product may lose market share due to competition.
• Ignore risk: Do not do this, at the very least, take the “strategically accept risk” approach and have some contingencies in place. Simply ignoring risk may work for a long time, but eventually with enough time, it could have a devastating affect on your business.

Important Action Item: Identify 1-3 significant risks to your business that have likely been floating around in your mind for some time. Which one of the four approaches I mentioned are you implementing to address that risk? Is that approach appropriate or should you consider discussing something different with your team?