Smart Small Business Risk Management Can Help You Sidestep ‘Big Traps’

Small Business
small business risk management

As a small business owner, you know that running a small business is, well, risky business.

But Bob Gellman, managing director at business consulting firm CBIZ Inc. who’s been giving business owners advice since the 1980s, says there are ways to minimize risks by taking a “long-term view.”

As a small business owner, you have a long list of potential risks to think about.

You worry about legal liability if ever there’s an accident at your place of business and about your books being in order in case the taxman comes knocking on your door. You worry about having enough insurance in case of a natural disaster or a theft or some other unexpected event.

A single mistake related to a legal, insurance or financial accounting issue could be costly and lead to a serious setback.

“A business owner spends a lot of time creating wealth,” Gellman tells NerdWallet. “They should have a system in place which they can rely on to protect the value they have created. The mantra is grow and protect.”

And you can protect what you’ve built if you keep in mind these three tips, which Gellman says are all about avoiding “big traps.”

1. Don’t get stuck with the wrong set of advisors

Bob Gellman

Bob Gellman

Your small business will surely use the services of these key professionals: an attorney, an accountant and an insurance broker. Whether you hire them as staff or use contractors, your choices are critical, Gellman says. That’s because the realm of “what you think is possible and not possible will be ruled” by the people you choose to take on those important responsibilities, he says.

Hiring for these positions means being sensitive to conflicts of interest, Gellman says.

“It’s all about conflicts of interest,” he says. “An independent advisor should have the client’s best interest at heart, which would include referring them to someone who may be more competent in a particular area. Asking an insurance salesperson to provide a financial plan is the classic example” of a potentially bad move.

When hiring an attorney, an accountant or an insurer, Gellman urges small business owners to “understand their competency and how they get paid.”

He adds, “It helps to know that your advisor works with a team of other advisors who they can readily refer in to assist in plan development and execution.”

2. Make sure your lawyer, accountant and insurer are in sync

So you’ve hired a lawyer, an accountant and an insurer. You meet or consult with each one of them regularly. But what if they don’t know what each is doing for your small business? They probably don’t even know one another.

That’s another common risk-management mistake, Gellman says. He recommends meeting with all three at least once a year, essentially to say, “Let’s get the issues out on the table and talk about them.”

This is a particularly serious problem for fast-growing companies with 50 to 100 employees, Gellman says. These small businesses usually have the money to pay for quality services, but they have “grown to the point that there’s so much going on.”

So they’re not able to leverage the professionals who are supposed to be working for them. Companies like these, he says, “are usually riding a rocket” but “have lots of issues all the time.”

3. Have a comprehensive plan, including an exit strategy

“Begin with the end in mind” is one point Gellman stresses to small businesses. That means having an idea of the road ahead for your small business, including the role you plan to play in your company.

Are you in it for the long haul as the owner and as the boss? Or do you plan to unload some of the burden by bringing in a partner or other investors? Or do you plan to make an exit when your small business reaches a certain point, say, revenue of over $1 million?

Your game plan and objectives could change, of course. But having a “long-term view” will help you define your strategy and tactics in running the company.

And remember that your plan should take into account business cycles and trends in both the market where you’re competing and the economy in general. Gellman cites the example of a Los Angeles couple who found their plan to sell their housing construction firm and retire derailed by the housing crisis that started to hit in 2006.

They learned from that lesson as they continued running the business, while preparing for “their next window of opportunity,” Gellman says. To do this, these business owners “prepare a quarterly economic dashboard that portrays national, regional and local trends as well as internal business metrics.”

Bottom line, Gellman says, small business owners should always ask: “You want to make money and you want to keep it. What are the risks of you losing it?”

For more information about how to start and run a business, visit NerdWallet’s Small Business Guide. For free, personalized answers to questions about starting and financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.

Benjamin Pimentel is a staff writer covering small business for NerdWallet. Follow him on Twitter @benpimentel, on Google+ and on LinkedIn.


Images via CBIZ and iStock.