risks & insurance

Risks & Insurance

There are always risks involved in everything we do, including running a business.  What will help your business is succeed is how you address these risks.  One way to do this is to take out appropriate insurance cover.

BUSINESS RISKS

Business risks you need to be mindful of are often categorised as follows:

Reputational

It can take years to earn and be gone in an instant: building and maintaining your reputation and good will with customers is vital.  Any negative publicity from litigation, a product recall, or poor reviews (whether posted online or in print, or spread by word of mouth) can lead to significant setbacks in plans for developing your customer base.  

Financial

If you can't pay suppliers, staff or lenders, or customers can't pay you, this is a fundamental risk.  This could be triggered by external events beyond your control, such as changes in interest rates, tax rates, foreign currency exchange rates, or change in cost of key materials or services.

Legal & Compliance

Data protection, health and safety, commercial premises licenses, competition rules on issues such as price-fixing, trade control and import/export licences, anti-bribery and corruption, anti-money-laundering, and so on: all areas where your business needs to comply.  There may well be additional specific requirements for your business sector, particularly for closely regulated areas such as medicines and pharmaceuticals, food and drink, construction and engineering.

Strategy & Operations

This covers a whole range of internal and external risks.  Internally, your equipment or software could fail, or perhaps key suppliers let you down - either way, you may be left unable to fulfil an order or complete a job.  You may experience unexpected competition - from new players in the market, or at least from new products or technology of others that impacts on your sales.

 

You may lose key staff or skills, or find trade secrets or other important confidential information has been leaked to competitors, inadvertently or otherwise.  You may become suspect others are infringing your intellectual property (IP) rights (copying your designs, say, or passing off their goods as yours), or may be accused of infringing someone else's IP rights. 

 

If the goods or services you provide are defective or negligent in some way, this may lead to your customer/client suffering damage, or injury or loss of business.  As a director of a company, you may make a poor strategic decision resulting in significant loss of profits/profitability for the company.  

There are others.

Ignoring these risks could become very costly very quickly.  Failure to comply with some legislation can lead to large fines (for example up to 4% of global turnover in the case of a serious data breach under data protection regulations).  Further, if your reputation nosedives or if you do not obtain appropriate licences and certificates when needed, you may end up losing 'goodwill' and perhaps licence to operate altogether.  If you cannot do business, or can't pay your staff, or can't secure necessary supplies of goods and services, your business will suffer.

Risk Management

Active risk management is important, and having appropriate processes in place will help attract partners, investors, even customers.  There are a number of ways to do this:

Insurance

Take out appropriate insurance policies to cover key identified risks.  (See below.)

Stay Updated

  • Keep on top of market trends, of competitors and their latest activities, products and technologies, of new regulatory and compliance legislation, and of your own and your competitors' intellectual property (IP) rights.

  • Seek out regular training/refresher events and sign up to useful information sources from business and legal websites - including Venture Adventures updates!  

  • Consider setting up regular IP rights 'watches' or searches via an IP law firm or service provider to check what competitors may be doing in your business area - whether they may be infringing your IP rights or perhaps filing applications for new IP rights themselves, giving an insight into the direction they may be heading for future product development.

  • If something concerns you, seek legal advice: better to understand the risk before you decide to take it.

Careful Operational Management

  • Once you are sure of all current regulatory regimes, obtain all necessary licences and certifications and put in place internal processes to ensure effective compliance by your staff: from data protection to fire and health and safety .​

  • Consider appointing different staff members to act as first aid, fire, data protection officers - and ensure they have appropriate training and regular refreshers to be able to do this properly​.

  • Arrange back-up power, IT and data storage services, as well as alternative options for all key suppliers so you can ensure continuity of your business and of supply to your customers​.

  • It goes without saying, but careful project planning and financial management will help, including regular realistic forecasting to manage forward planning: appoint an accountant/tax adviser.

  • Maintain good records of orders, and good relations, with customers: anticipate and respond to their needs.  Good for managing resources and your reputation.  Consider installing some form of Customer Relationship Management processes or software.  Do your homework on new customers/partners before entering an agreement - will they be able to meet their payment or other obligations?

Contracts

  • Make sure your contract provisions are clear - and acceptable - on payment (amounts and timing), termination rights, 'force majeure' (what happens to each party's obligations in the event of flood, war or other unavoidable events that prevent you from carrying on), and exclusions/limitations of liability.  (Although note that you will have less freedom to exclude liability in contracts with consumers.)

insurance

Insurance helps cover your business for any loss or damage it suffers as a result of many of the risks described above becoming a reality.  If the issue in question involves a legal dispute, relevant insurance cover may also extend to some or all of the lawyer's fees and other expenses incurred.

There are some areas where appropriate insurance is required by law or codes of the relevant regulated body.  For example:

  • Employer's liability insurance if you have employees.

  • Professional indemnity insurance if you are providing regulated professional advisory services (such as law, accountancy, engineering).

There may be other requirements for your specific business activity: always check with the relevant regulatory body.

Other areas where you might consider business insurance include:

 

  • Public liability - for any damage or injury you may cause to customers or any third party at an event, exhibition or fair, say.

  • Loss of stock - in the case of fire, theft, etc.

  • Product liability - specifically for the case that end-users suffer harm as a result of using your product

  • Company director/officer - to cover the case that a strategic decision you make for the company to do/not do something results in lost profits or reduced profitability and, say, shareholders bring a claim against you.

  • Business interruption

  • Travel

  • Business vehicle

There are also more specialist areas you may wish to consider, depending on the nature of your business and what you see as key risks:

  • Intellectual Property (IP) disputes: opposing registration of IP rights (defending your own application or challenging someone else's) or claims of infringement of IP rights (bringing a claim or defending a claim brought by someone else)   

  • Litigation generally - to ensure you can afford to defend yourself or bring a claim to protect your business if needed

  • Cybersecurity (data breach)

  • Marine & Shipping

  • Sports

  • Political risk if you will be doing business in politically volatile countries or regions

  • Pollution/ Environmental damage - for example if you are running a construction or engineering business or project

Inevitably, there is a cost to each insurance policy, but it can help to attract investors or partner if you can show you are taking action to protect value in key assets or services.   IP or litigation insurance can also deter others from infringing your IP rights or breaching your contract, or from bringing a claim against you, if they understand that you have access to the necessary funds to address the legal claim properly, meeting legal counsel expenses and so on.

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