Risk Management – Introduction and OverviewTomChilders
Many of us in small business today, and landscaping specifically, equate risk management with insuring everything you should [and can afford to] but we all know in reality it can be a lot more. In fact, the topic can be overwhelming, but a basic framework such as the one below can help begin to think about mitigating risk you might not otherwise think about.
Risk management is about identifying the risks and threats that could potentially affect your business. These risks can be internal or external so you need to think it through. Some examples of internal risk might include human risks, i.e. theft, equipment, and even cash flow. Some examples of external risk might include market shifts or cost increases. The point is you want to identify any and all that you can that impact your existence, continuity, profitability and growth potential. Some specifics to think about as green industry contractors include vehicles, cargo carriers/trailers, equipment, property damage, liability, employee injury, and you as “key” person but more specifics on all this below in insurance.
Once you have identified all your risks, you want to look at the probability of occurrence and the cost of such an occurrence to determine priorities. The higher the cost and probability, the higher the priority. Then, this must also be weighed against the cost to mitigation or manage, i.e. insurance premiums. Simple example would include two items with the same premium and replacement cost, but item A has a risk probability of 20% versus item B at 5%. Item A is most likely a higher priority.
In case you’re wondering what the rest of the world is worrying about in the area of risk, the Travelers just came out with its 2015 Business Risk Index Summary. The top seven in order are: medical cost inflation, cyber risks/data breaches, increasing employee benefit costs, legal liability, attracting and retaining talent, regulatory compliance, and broad economic uncertainty. Seems fairly representative of our industry worries too, attracting and retaining talent, regulatory, employee and medical costs.
If you want to take deeper dive into Risk Management, a good resource is the SBA’s Is Your Business Fiscally Fit section, training module 7, Risk Management, under “The 10 Training Modules: Money Smart for Small Business”.
As for the pure, non-employment insurance needs of your business, there is not a standard suite to recommend but in our industry some of the more common are general liability, workers compensation, and vehicle insurance. You can insure your equipment too but that can get tricky and you may end up with something known as inland marine insurance. You will need to talk to your agent or carrier.
Employment insurance is state specific but workers compensation, disability insurance and unemployment insurance tax are three of the more common ones. For more on this and to see some state specific info see this SBA resource.
Insurance and risk are serious topics and require time to understand. Luckily, the resources abound and many are free. If you are comfortable at your stage, great but stay current; if not, take advantage these two great free resources, InsureUonline, from the National Association on Insurance Commissioners (NAIC), and the SBA. If you are unsure where you are here is a great quiz to test your knowledge from InsureU.