According to QBE Australia, 62 per cent of small businesses in the country are likely to be underinsured. Additionally, 87 per cent of SME owners believe that a business liability claim can drain their finances or even put them out of business.
This underinsurance problem is rooted in poor risk management. If you’re a business owner, you need to understand the potential threats and losses that your company can face. Even SMEs are vulnerable to risks that can lead to financial fallout, which is why we have small business insurance schemes.
To protect your business from terrible losses, you need a sound risk management strategy that identifies all potential threats and implements processes to minimise them. IMAR shares this quick, 4-step guide to risk management for small businesses.
1. Identify potential risks
The first step is to list the internal and external risks that can affect your business. Internal risks are threats within your company that you can control, whereas external ones are those outside of your control.
Some internal risks you want to look into are employee turnover, high absenteeism rates and equipment failure. If you’re in a high-risk industry like construction, employee accidents and injuries are big risks for your business.
External risks include economic downturns, changes in laws that result in penalties for non-compliance, and natural disasters.
2. Measure your vulnerability
The next step is to measure your vulnerability against the risks you’re facing. You need to look at two factors: a risk’s likelihood of happening and the level of impact it has on your business.
Rank the risks according to their probability and potential financial damage. The highest ones are risks you want to prioritise since they present the biggest threats to your company.
You can use a risk matrix to get a better visual of what your business is facing. A risk analysis matrix template is available for download on the Small Business Development Corporation website.
3. Plan counter-measures
Establish an appropriate, cost-effective response for each of your business risks, especially the highest-ranked ones. Your counter-measures should minimise the likelihood of a risk occurringor protect your company from financial losses in case it does happen.
For example, tool theft is a persistent problem for tradies. You can guard against this risk by getting tool insurance coverage.
However, external vulnerabilities are harder to prepare for since they’re outside your control. For these kinds of risks, your response strategy should be to lessen their impact on your business. Having business continuity plans and the right insurance schemes help ensure that your operations will continue despite unexpected events.
The best example of an external business risk is the COVID-19 pandemic. Many businesses coped with the crisis by shifting most of their operations to digital platforms, allowing them to operate remotely amid the pandemic.
4. Monitor and revisit risks
Lastly, revisit your risk management plan every so often. As your business grows, your risks and liabilities grow, too. You need to adjust your strategy to accommodate these new vulnerabilities, making sure that your business is adequately protected as you continue to expand your market or employ more people.
Having a risk management plan is critical to your financial health and business success. It’s important to invest in the right risk reduction solutions to ensure that your business has sufficient protection from its unique threats.
Protect Your Small Business, Protect Your Livelihood
For more than 35 years, IMAR has been looking after the special insurance needs of small businesses as well as tradies and builders. Our insurance schemes are specially designed for every business, making sure that you’re adequately protected from potential losses.
Contact our experts today to know which insurance plans would supplement your risk management strategy.
To the extent that any material on this page may be considered advice, it does not take into account your objectives, needs or financial situation. You should consider whether the advice is appropriate for you and review any relevant Product Disclosure Statement and policy wording before taking out an insurance