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the risks
Risks & Insurance
There are always risks. Try to identify the main risks your business may face, the likely consequences, and what actions you can take to minimise the impact. Lenders, investors and partners will want to see that you are thinking about this and taking appropriate action.
Business risks are often categorised as follows:
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Reputational: negative publicity, whatever the cause, can very quickly damage a hard-earned reputation, with an impact on sales and put off customers.
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Financial: if customers can't pay you, or if you any reason you can't pay suppliers, staff or lenders. Again, this may very quickly have a serious impact.
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Legal & Compliance: you could be exposed to fines or criminal sanctions for failure to comply with legislation on data protection, health and safety, commercial licensing, competition rules etc., in turn then potentially becoming a reputational and financial risk.
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Strategy & Operations: internal risks (for example if your equipment or software malfunctions, causing damage to your operations or even to a customer) and external risks (for example if a new competitor enters the market) that could affect your sales.
Risk Management
Ignoring these risks could become very costly very quickly. It is important to have appropriate processes in place to manage them. There are a number of ways you can do this:
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Insurance: take out appropriate insurance policies to cover key identified risks. (See below.)
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Stay Updated: on new competitors or products or services in your market, on new regulations and compliance issues, etc. Sign up to training and blogs and updates from service providers. (Why not sign up for Venture Adventures updates?)
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Careful Operational Management: keep all licences and approvals up to date, keep on top of the admin and finances, keep an open dialogue with customers and suppliers so you have an idea what's coming and can manage any reputational issues more easily.
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Contracts: make sure you get business arrangements in writing with clear contract provisions on payment, scope, limitations on liability etc. It is worth seeking legal advice to get this right.
If any of the above risks became unmanageable, what would you do? Do you have a 'plan B'? (For example, if an important product line is defective, cannot be rectified and continues to cause damage to customers - can you switch to an alternative product with equivalent functionality and appeal?)
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. This inevitably comes at a cost, but again can help to reassure investors or partner that you are protecting value in key assets or services.
There are some areas where appropriate insurance is required by law or the code of the relevant regulated body. For example:
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Employer's liability insurance if you have employees
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Professional indemnity insurance if you are providing regulated professional advisory services (such as law, accountancy, engineering)
There are many other business risks you may want insurance cover for, for example:
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Public liability - for any damage or injury you may cause to customers or any third party at an event, exhibition or fair, say.
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Loss of stock - in the case of fire, theft, etc.
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:
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Cybersecurity (data breach)
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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). Just having this insurance could be enough to deter someone from infringing your IP rights, or from bringing a claim against you, if they see you can afford to involve legal counsel to handle the case.
See Risks & Insurance for more information.