Your business is a risk. You’re a risk. Your employees are a risk.
You’re liable for everything that happens to everyone. Whether it’s an employee injured at work or a missed deadline. If someone thinks you did wrong, they have the right to make a claim against your business.
Different businesses have different risk appetites. As a first-time business owner, you’re unlikely to know all of them. Below, we’ll give you a guide to estimating your risks if you don’t have a clue what you’re doing (most people don’t).
Understanding the Different Types of Risk
Risk management and estimation is the process of identifying and prioritizing specific risks. If we were to talk broadly, there’s an endless list of business risks. The issue you’ll face is that you can’t speak broadly; you need to be specific.
To give you an idea of what you should look for, some of the most common business risks include:
- Personal and professional liability
General liability is the broadest coverage you can find. It’ll cover property damage, medical bills and expenses, court costs, reputational damage, etc. The cost is dependent on the business, but you can use a general liability insurance calculator for an estimate.
Then you have to take those risks and think about how they specifically apply to your business. For example, your professional liability might be that you missed deadlines, or you made project mistakes and oversights. Employee injury specific to your business might be office overcrowding, leading to trips and falls.
You can use online business risk analysis tools such as:
- Qualitative Risk Assessment Tools
- Quantitative Risk Assessment Tools
- Risk Identification & Analysis Tools
- Risk Monitoring Tools
- Risk Management Software
We’ll go into detail about these further along.
Measuring the Potential Impact
You don’t necessarily need to worry about every risk. We guarantee CEOs don’t spend their day overthinking whether an employee might trip over a cable today. But we do guarantee they’ll worry about claims against their business if they miss a deadline and cause business and financial disruptions.
We’d recommend listing the risks you can think of. For each one, ask yourself: Is it likely? How much damage could it cause? Could I bounce back quickly if it happened?
If the answer is yes to “likely” and yes to “big damage,” it’s a top priority. And still, if you have the correct level of insurance, even the big worries don’t sit on your mind as much. At least you know you have financial cover. For any risk you can think of that isn’t something minor that is likely to never result in a claim, you should have insurance for it.
Tools and Methods for Risk Estimation
We started to mention the tools and methods for risk estimation, but we think it’s essential that you understand how they work and how they benefit your business in more detail:
Qualitative Risk Assessment Tools
A qualitative risk assessment helps you identify and prioritize risks based on subjective judgment and descriptive analysis. It doesn’t necessarily look at the numbers. This is what insurers are more interested in.
Quantitative Risk Assessment Tools
Quantitative is the opposite of qualitative. It’ll look at the potential of each risk in statistics and numbers.
Risk Identification & Analysis Tools
If you’re struggling to look at your business and make the analysis yourself, there are some excellent online tools to help you. Some of the best include:
Within all of these, you can develop workflows that detect risk.
Risk Monitoring Tools
Constantly monitoring your risk profile helps you reduce the likelihood that they actually become issues. It’s the process of using risk identification and analysis tools to monitor potential issues on an ongoing basis.
Risk Management Software
There are multiple software programs available tailored to specific industries. They help identify, assess, and reduce potential threats to your business.
Studies show that approximately 36% to 53% of small businesses are sued each year, and 45% are currently involved in litigation. Understanding and identifying your risks as a first-time business owner at least creates some security.