Part
Eight - Risk Management
Risk
management is the management of the risks associated
with doing business, particularly the ones that the
managers can't stop happening but can reduce the impact
of. This basically comprises understanding what all
the risks are and taking the appropriate steps to protect
the business should one of the risks eventuate. The
wise option for the business manager is to insure against
these risks. They may never happen but should they happen,
they would probably prove destructive to the company.
Some
of these risks are:
Key
man insurance
This
may have a variety of names but is generally an insurance
to protect the business should its key management suffer
a trauma, become disabled or even die!
If
your key management was not available due to the above,
could the business still operate? Could you service
your debts? Would profitability suffer?
Are
you aware of the risk? Are you doing anything to protect
the business?
Business
interruption
Even
if direct damage is fully and promptly compensated by
insurance, the injury inflicted upon cashflow may be
so severe that the business never regains a normal level
of profitable operation. There are many reasons for
this but one of the most common is that the business
was under insured. More than 40% of businesses that
sustain a major disaster do not continue to trade.
Directors
and Officers' insurance
This
is designed to protect directors and officers from loss
resulting from claims made against them in the discharge
of their duties on behalf of the company.
Debtor
insurance
This
is an insurance that protects businesses from the default
of its debtors. A lot of businesses would have at least
one major debtor that could take the business down should
they fail to pay their debt. There is now a product
on the market that provides insurance cover that pays
out 85% of the debt. Premiums start at $10,000 pa so
it is not for everyone.
There
are other insurances out in the market place and if
you have not got a relationship with a good insurance
broker or agent I suggest you get one to make sure you
are aware of the risks associated with your business
and make a decision to insure against them after performing
a cost/benefit analysis. All I am saying here is that
you should become informed and make up your mind when
you have all the facts. Once you have insurance in place
you should also review the level of cover annually.
