At any given time, your business will face a number of potential risks that could affect the profitability or viability of the business.
Some of these could be:
- Costs increase, taxation, suppliers etc
- Increased competition, and product innovation from competitors
- A staff member is injured at work
- Skilled staff leave
- A natural disaster affects your business
- Death, injury or illness of a business owner/ partner, or key staff member
A sensible approach to take when dealing with these risks and other issues is to plan for them before they happen. Prior to managing risks, they need to be identified. Some questions to ask are:
- What could go wrong?
- How likely is that to happen? Is it realistic (there is probably no need to plan for being attacked by a herd of wild animals!)
- Will there be a significant financial loss? (phone lines being down for half a day would probably not be the end of the world for some businesses, but could have a big impact on a telesales business)
- What steps could I take to prevent it?
- What do I do if it happens?
Once you have identified the risk, a risk management plan should be put in place for each of them. Essentially standard processes and procedures. For example installing CCTV cameras in a warehouse at risk of theft, or using fire retardant materials when storing valuable stock. It would also involve taking out insurance to protect against different events. There are a number of types of insurances that could be relevant.
- Assets insurance- protecting property against fire, theft damage
- People insurance- workers comp, personal accident or illness
- Liability insurance- public, professional or product liability
Some of the most common types of cover are:
Professional Indemnity Insurance
This protects the business from any claims of professional negligence. It is often a compulsory cover.
Protects employees against injury at the workplace.
Buy/ Sell agreement
A buy/sell agreement is not just a type of insurance but also a contract between business partners. The purpose is for surviving partners to be bound to buy out the other partner’s interest should specific events occur. The specific events could be death, divorce, long-term disability, or retirement.
This policy thus provides the surviving partners with the money to buy out the deceased/disabled partner’s interest. An insurance policy is then taken out on each business partner to fund the
Key Person Insurance
If the loss of a member of the business from death, disability or illness had a significant financial impact, you can protect against that loss through key person cover. This might be the senior salesman, with difficult to replace skills. It would only be relevant to do this for someone who’s contribution is uniquely valuable to the business.
Directors and Officers Insurance
As a director of an Australian company you are personally liable for possible fines, legal costs or compensation. This insurance mitigates that risk.
By Myles Thornton