Risky business: the value of risk assessment and management.

• Author: Wilhite, Brent
• Position: All Business Advisor

IF YOU'RE A SMALL BUSINESS OWNER, you know about the trouble and stress of making payroll, increasing sales and getting people in the doors in a tough economy Add to those concerns the "what-if" scenarios that could literally cripple a business, and you're in for more than a few sleepless nights.

"All businesses need to look at the way they manage their risk and exposures to risk," says Craig Smith, executive vice president of Salt Lake City-based Fred A. Moreton, the largest independent insurance and risk management broker in the Intermountain West. "What's going to happen to me if I have a fire? Is my inventory insured to the value it ought to be insured to? What happens if somebody slips and falls on my premises? What happens if my driver hits a car filled with kids? Are my liability limits sufficient to protect me? Whether the business is large or small, all business owners need to evaluate the way they do business from an exposure point of view," he cautions.

Risk management entails analyzing all exposures to the possibility of loss and determining how best to minimize or eliminate them. Small business owners who remain unprotected or uneducated may learn about the critical function of risk management the hard way

"If a business owner doesn't take the time or doesn't deal with a broker or agent who is a professional and can evaluate their exposures, they certainly can find themselves in a very difficult position if they have a loss," explains Smith. "Maybe they have a $500,000 coverage on their general liability, and one of their truck drivers hits and kills somebody then their claims go up to $2 million."

In analyzing risk, "the first thing is to make sure you identify, for your individual company what are your biggest risks? What can put you out of business?" notes Mark Marshall, director of risk management for SOS Staffing Services and the secretary for the Utah chapter of the Risk and Insurance Management Society (RIMS).

This self-assessment of potential exposures is different for each company and varies by industry For example, if your business operates a fleet of commercial vehicles, your risks will be very different than the exposures banks and credit unions face.

To solve this problem, specialized insurance can be purchased for particular risks in different industries. If you have a chemical component in your production process, you might want special toxic risk insurance. Companies relying on Internet access to run their...