<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=290086984736480&amp;ev=PageView&amp;noscript=1">

The Alternative Board Blog

Know the Fundamentals of Risk Mitigation for Your Business

May. 25, 2016 | Posted by The Alternative Board

How much business risk is acceptable? How much is too much risk?

Every entrepreneur faces risks of some kind, whether they’re jump-starting a new business or assuming leadership of an established company. But CEOs and business leaders don’t always consider the scary variety of risks they might have to contend with (at least in theory) at some point in their business’s evolution:

  • Product malfunctions
  • Disasters and business interruption
  • Injuries to customers or employees
  • Breach of data security
  • Unanticipated property loss
  • Employee theft and embezzlement
  • Violation of state and federal regulations

Entrepreneurs are by nature an optimistic group and don’t want to spend a lot of time contemplating these worst-case scenarios. On the other hand, ignoring such eventualities or failing to adequately prepare for them aren’t viable strategies for ongoing growth. It’s imperative to fully understand the potential risks to your business and to mitigate them wherever possible.

Here are key considerations to keep in mind when assessing the scope and depth of potential threats to your business:

Understand the concept of risk management.

Simply put, “risk management” means recognizing the likelihood that, at some point, your business will encounter unexpected circumstances with significant negative consequences. (This can also apply to unexpected growth opportunities, and understanding the inherent risks that come with those opportunities.)

The goal is to identify what form those risks are likely to take, given your specific industry and the marketplace in general, and devising strategies to lessen the negative effects.

Limit your liability.

First and foremost is protecting your personal liability. For many entrepreneurs, this means switching from sole proprietorship (where you’re responsible for anything that goes wrong) to a corporation or limited liability company, where your responsibility is more limited, but your key business assets are secure and protected.

Want additional insight? Read 4 Step Guide to Strategic Planning now to learn more


Maintain a strict separation between business and personal records.

Whenever one’s personal life spills over into one’s business affairs, trouble can occur. It’s critically important to keep your personal finances and property apart from the business, so they’re not considered part of your business liability—and therefore at risk to be lost at a later time. Most entrepreneurs establish records relating to finances, budgets and taxes in both their personal lives and as business owners or leaders. These areas should never overlap.

Create contingency plans.

Once you’ve identified possible risks, it’s time to create contingency plans focused on a rapid response to specific threats and ways to keep business operations running as smoothly as possible. Get into “What if?” mode. For example, if your biggest client walked away tomorrow, how would you handle the situation?

Again, the same risk-management concept applies to potentially favorable opportunities. What are the benefits and risks involved, for example, in hiring a talented new CFO? What about authorizing the launch of a key product upgrade? Develop a way to assess the risk-reward ratio of your actions, so as to minimize surprises later on.

Explore your insurance options.

While they may sometimes be costly, obtaining the right insurance policies can protect you against a wide range of threats, including damage from catastrophic weather events or employee lawsuits. Look closely at insurance your options and determine if and when transferring some of the big risks of business ownership make the best sense for your company.

Implement strict control and reporting systems.

As sometimes happens in family-owned businesses, a company can grow in size and levels of bureaucracy, but never develop a system to identify who can make and/or authorize particular decisions. In such a void, problems are always brewing.

This is equally true when no one knows who reports to whom, and under what circumstances. These areas of risk must be addressed, for the benefit of everyone concerned.

Other preventive measures should also be considered, such as implementing stronger workplace safety regulations, instituting a quality assurance program, and closely monitoring outstanding loans and financing issues. Most importantly, business leaders need to adopt a risk mentality. It’s may be too simplistic to say anything that can go wrong will go wrong, but as any seasoned entrepreneur will tell you, it’s better to see what’s coming than to pretend it can’t happen to you.

Read our 19 Reasons You Need a Business Owner Advisory Board


Written by The Alternative Board

Related posts

The Best Business Practices: What You Need To Know
Feb. 27, 2020 | Posted by The Alternative Board
As business scales, circumstances change, and every company must adapt to new situations. Some businesses decide to experiment with different solutions to find out which suits their needs best. While...
Boost Retention by Building a Great Workplace Community
Jan. 30, 2020 | Posted by The Alternative Board
The term “company culture” gets tossed around a lot lately, and it’s true that a strong corporate culture can make a big difference in boosting employee recruitment and retention. But, increasingly,...
What's the Difference Between Business Development and Sales?
Jul. 18, 2019 | Posted by The Alternative Board
At first glance, there doesn’t appear to be much distinction between business development and sales. Aren’t both activities geared towards generating more profit for the organization? Isn’t a sales...
A Quick Guide to Crafting an Effective Call-to-Action
Jul. 11, 2019 | Posted by The Alternative Board
With all the talk about content marketing and direct mail marketing that businesses must try to keep up with, one essential element sometimes gets lost in the mix. Improving click-through rates to...
5 Customer Acquisition Strategies that Spur Growth
Jul. 9, 2019 | Posted by The Alternative Board
Maintaining a strong base of existing clients is essential for every business, but acquiring new customers is equally important. Without an influx of new and prospective customers, a business may...
The Reality Factor: How Direct Mail Marketing Is Changing
Jul. 4, 2019 | Posted by The Alternative Board
Is direct mail part of your current marketing strategies? Using tailored messages to attract targeted prospects is a valued marketing tradition. This encompasses a broad range of materials, including...
Five Tips to Effectively Scale Your Business' Growth
Jun. 27, 2019 | Posted by The Alternative Board
All businesses need to grow, but at what pace and how quickly should they scale that growth? These questions intrigue (and sometimes torment) business owners, because there’s no single “right” answer...
Create a Customer Satisfaction Survey that Gets Results
Jun. 20, 2019 | Posted by The Alternative Board
Crafting a customer survey that gauges satisfaction with your business isn’t as easy as it looks. If the survey is comprised of misleading questions, or comes burdened with too many instructions,...
4 Tips on Creating a Great Customer Experience Strategy
Jun. 6, 2019 | Posted by The Alternative Board
In your company, how much thought is given to the quality of interactions between your customers and your business? The experience your customers have when interacting with your brand can make all...
Are You Looking to Expand Your Business? We Can Help You
Jun. 4, 2019 | Posted by Phil Spensieri
Over the years, I’ve coached many business owners as they’ve worked to expand their business. Whether it’s the physical expansion of your office space, expanding your workforce, or investing in new...