Risk Management

Does Your Family Business Need It?
Isn't risk management just for businesses that have risks?

Risk management poses a lot of questions... so let's get right to answering them!

True, risk assessment management is for businesses that have risks.

So, maybe you're thinking yours is not a risky business and that there will be nothing here for you.

"Think for a few moments about the kinds of things that family business owners are faced with," asks leading family business expert Don Schwerzler Schwerlzer has been studying and advising family business entrepreneurs for more than 40 years and is the founder of the Family Business Institute and the Internet organization Family Business Experts, both of which are headquartered in Atlanta GA.

Some risks are random and unpredictable, like weather and terrorism.

Others seem quite random and unpredictable but you can sometimes "see them coming" if you are regularly doing strategic planning to scan the "distant horizon", such as changing tastes and trends, new products or services introduced by competitors, new government regulations, changes to your local economy like plant closings and the related layoffs.

Still others are more predictable and can be planned for in your annual and budget planning cycles, like sales volumes and sales prices, costs of direct materials, supplies and overheads, capital costs for equipment replacement or additions.

Then there are the events that can - and do - happen almost anytime: they can disrupt operations, evaporate cash reserves, kill of cash flows and profits, cripple or bankrupt your business. Fire's loss potential is well known, and you probably have insurance protection against it since it could damage or destroy the building you rent or own and the contents, so you aren't able to continue business. Liability for injury to another person or their property can cost "big time" and is probably also protected against.

Big companies, including some family businesses!, can afford to have risk managers who are trained and specialize in helping their company identify and deal with risks. But many others cannot, so the owner and managers have to fulfill that responsibility.

We think every business has risks. They are there whether or not you go looking for them. So, Yes, we think every business needs to practice risk assessment and management. And that leads us to the question...

What Is Risk Management?

Managing Risk is a discipline that aims to protect assets and profits by reducing the potential for loss before it occurs, and by financing, through insurance and other means, potential risks to catastrophic loss.

The process for managing risk consists of four elements:

  • Risk Assessment - identifying and quantifying the exposures that threaten an organization's assets and profitability
  • Loss Control - reducing the frequency and/or severity of losses through preventive measures, such as sprinkler systems, improved housekeeping practices or preventive maintenance of key equipment
  • Risk Transfer - shifting the financial burden of loss so that, in the event of a catastrophe such as natural disasters, human error or court judgments, an organization can continue to function without severe hardship to its financial stability
  • Risk Monitoring - continually assessing existing and potential exposure
  • Executive Liability Insurance - Directors and Officers Liability; Employment Practices Liability; and Fiduciary Liability

Click on each heading above to study the element in more detail. We've concentrated on building a framework that will help you consider all the areas of your family business where you might need to consider risk and how to protect from it.

Insurance Checklist

We've also provided a handy checklist that you can download or print to help you with Risk Assessment and to provide guidelines for discussions with your insurance professional.. [Click on the heading above and use your browser's File / Save As function to print a copy to a text file so that you can keep this reference close at hand for risk management.]

Another consideration for certain family businesses is the question of self-insurance - it can be so much more than just a risk management strategy - it can be a wealth preservation strategy! Here's a link to a handy reference article for those who want to really dig into details!


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