Having written about risk for 12 years and having run my own business for a few decades, I’ve seen the same risk sins committed time and again by business owners. Some I’ve committed. Others I’ve watched play out from the sidelines.
If I’ve learned anything from owning my own business, it’s how rampant risks are and how devastating they can be if ignored indefinitely. Many of my colleagues avoid buying even the most basic business insurance policy, but the greater risks lie well beyond what’s spelled out in the coverage details.
Here are some of the more common oversights that threaten small businesses:
Lack of planning. As a freelance writer and editor, I’ve seen numerous hiccups in my work schedule – unplanned work stoppages thanks to inconsistent marketing practices. I’ve seen also how those hiccups can cripple fellow writers. Maybe it’s the perception some writers have of themselves (as creatives only), but many are surprised when I ask them if they have a business plan. They’ve failed to plan even the most basic business elements, including their targeted earnings goals. All businesses should have at the very least a rudimentary plan of action for gaining customers, delivering services, and paying the bills.
No business interruption plan. Entrepreneurs may be cognizant of what happens when they’re unable to conduct business, but it’s something that affects businesses of all sizes. Unforeseen natural events, owner illness or death, legal entanglements, even divorce can create a devastating work stoppage. Without both a backup plan and business interruption insurance, the doors could close for good after just one event.
Putting all the eggs in one basket. It’s tempting when a big customer comes along to devote more than 30 percent of your time and attention to that one customer. However, today’s customer is tomorrow’s memory. Needs are transitory, and business owners are wise to recognize that the loss of a major player could lead to dire financial straits. I recall one rather large business that closed within days of losing its largest customer, which made up 33 percent of its customer base. Diversify.
The risk of the unhappy customer. In small business, every interaction counts. The customer you please today could be tomorrow’s referral. Conversely, the customer you upset or are curt with will tell anyone who will listen why they should avoid your business. Worse, many customers are taking to the Internet and letting their complaints live on indefinitely via blogs, review sites or forums. While not every customer can be satisfied, business owners can put into place a customer interaction plan to better handle customer complaints.
Beyond solid insurance coverage to mitigate those risks that can be protected against, small businesses should be conducting a thorough review of their businesses from operations through employees. By examining each area of the business for worst-case scenarios, business owners can find ways to improve practices, reduce risk, and strengthen the business.
Lori Widmer is a Philadelphia-based freelance writer and editor specializing in risk management and insurance writing. She has helped bring clarity to client communications projects ranging from brochures to white papers. Her work has appeared in industry publications, including Risk Management Magazine, Insurance Journal, Claims Journal, and Rough Notes.