How to Perform a Small Business Risk Assessment: A Guide

It’s a fact that running a business comes with a certain level of risk. That’s why business risk assessment is so important. Effective risk management strategies save companies time, money, and resources, and can prevent regulatory breaches.

In this article, we’ll cover the primary risk management factors to consider and guide you through the process of compiling a business risk analysis for your organization.

What is a Business Risk Assessment?

A business risk assessment is a process companies use to identify potential hazards that could interrupt operations and determine the resulting impacts. A comprehensive list of business risks includes anything that could result in:

By identifying potential business risks in advance, companies can analyze various scenarios, take preemptive steps to mitigate impacts, and ensure operations run smoothly.

Potential risks and their effects are identified through a business risk assessment. They're used by businesses of all kinds to decrease business risk, establish disaster recovery plans, and buy insurance for events they can't entirely control. These evaluations are especially important for small enterprises. According to the Federal Emergency Management Agency (FEMA), approximately 40% of small firms never recover from disasters. Vulnerable businesses must recognize possible threats in order to devise strategies to mitigate them.

Why is a Business Risk Assessment Important? 

The reasoning behind conducting a business risk analysis is simple. Some hazards have the potential to destroy a business, while others can cause long-lasting damage. So anticipating the possibilities and being prepared is essential. 

There’s often an underlying assumption that risk management strategies are only necessary for large companies and corporations. However, that’s not the case. Arguably, risk management for small businesses is even more critical because they have fewer resources and smaller cash reserves to deal with the aftermath of an unforeseen event or accident. 

The primary benefits of assessing risk and developing a risk management plan include:

Business Risk Causes

There are three primary sources of risk management factors to consider are:

  1. Natural disasters - Flooding, earthquakes, cyclones, and other natural catastrophes are examples of natural hazards that can result in the loss of life and property. For example, a delivery vehicle is on its way to deliver a customer's order when an earthquake hits, resulting in an accident. Businesses must take out extensive insurance coverage to protect themselves from such risks.
  2. Human factor - Worker negligence, union strikes, and mismanagement are examples of human factors creating risks within an organization.
  3. Economic fluctuations - Economic factors include growing raw material and labor costs, rising borrowing interest rates, and increased competition.

Risk Management for Small Businesses: How to Perform an Assessment 

Designing an assessment process can be challenging, as there are numerous hazards and possible scenarios to consider and account for. That’s why we’ve put together this handy step-by-step guide.

1. Identify Types of Business Risks 

A risk can be defined as any event with a potentially negative effect. When you’re getting started, it may help to compile an extensive list of business risks split into different categories so you can be as comprehensive in your approach as possible. Examples include:

2. Run Threat Scenarios

Under each business risk category, identify specific hazards, determine which assets are at risk in each scenario, and assess the scale of impact. Here are some examples to get you thinking:

Hazards

Assets at Risk

Impacts

3. Mitigate Risks When Possible 

There are four main types of risk management strategies to help you ‘treat’ each risk:

4. Create a Risk Policy Guide

Creating a company policy guide or employee handbook is a great way to outline your policies clearly. Ensure all employees are given a copy, and get them to sign a document stating they have read and understood the content. Be sure to include details on risk reporting processes so you can constantly evaluate and improve your policies. 

5. Insure Against Risks

Many insurers offer risk management policies that provide financial protection in the case of losses due to injury, assets, and revenue loss. Premiums are available to suit the needs of businesses of various sizes and structures. 

6. Revisit Regularly

Business risk analysis is not a one-time process. Risk assessment in business should be revisited at least annually and at any time your company’s risk portfolio changes. 

Find Peace of Mind with a Porte Brown Business Risk Assessment

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