It is impossible to avoid all the risk that can be associated with running a business. The challenge all small business owners deal with is mitigating the risk in an affordable way. How much risk can you live with comfortably and still be profitable? To answer this question, you want to have a risk management plan in place that will guide you through the obstacles that will come.

The first thing you must do is identify risks. Most businesses will have some common risks that can be easily identified. These initial risks will consist of property losses, business interruption, liability losses, key person losses, or injuries to employees and customers. All of these categories present their own set of risks that are shared by most business. The challenge of this step is identifying the risks that are unique to your business. One thing to keep in mind at this step is, sometimes a third party can be very helpful in helping you identify these unique risks. A trusted attorney can be a great help in seeing your business operations from a different perspective and assisting you with risk identification.

Next, you will need to determine your vulnerability to the identified risks. Ask yourself, "if this risk were to happen, how would the consequences affect day to day operations and how much would it cost?" Also, "what is the likelihood this risk would happen?" The answers to those questions will help you determine if the risk is worth mitigating against. If the probability you will incur this risk is low and the cost of protecting yourself from the risk is near the cost of the loss, it may not be the best use of your resources to mitigate against that particular risk.

Preparing a contingency plan is the next step in managing your business's risk. In some cases, this will be as easy as purchasing insurance. In others, it can mean implementing new policies and procedures. You may need establish training programs for your employees. It may also be that you have to make decisions about who you will do business with going forward. Each risk will require a specific contingency plan that is both comprehensive and creative.

Finally, the last step is monitoring and adjusting the plan as needed. Your business is always changing, there is no reason to think that the risks you face will not change too. Risk management is a continuous process that requires a close eye and sometimes quick adjustments. It is a good idea to take time to routinely review your risk management plan. Look for any new risk that may present themselves, and review the ones you've already identified to see if they still apply. Meeting with an outside party, such as a trusted attorney, to help you review your plan from time to time will give you a fresh perspective to see things from a different angle.

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