In the insurance and business worlds, we often talk about risk and the importance of risk management.
But how exactly do you define risk, and what are the main risks faced by SMEs?
A ‘risk’ is defined as any occurrence or event that could negatively impact a business. Examples might include property break-ins, natural disasters, cyber security breaches, financial fraud or power blackouts.
Risks tend to fall into different categories. Six common ones for SMEs are:
- Strategic – risks such as poor business decisions or inadequate allocation of resources.
- Operational – relating to day-to-day procedures and administration. For example, employee errors or fraudulent activity.
- Compliance – requirements to comply with laws and regulations, such as health and safety practices or ATO reporting.
- Financial – risks relating to the handling of money and financial transactions, with examples including cash flow and debt management.
- Reputational – the potential for damage to your business reputation. This is something businesses tend to be more vulnerable to these days with the internet and the speed at which news travels.
- Environmental – external risk factors, such as natural disasters and economic recessions.
All SMEs should have a risk management plan in place for identifying, assessing and managing their specific risks and vulnerabilities.
Insurance cover also forms part of risk management, as it provides financial protection in case of losses or damage due to adverse events.
Your local Reliance partner can help you to assess your risk level and secure the right cover for your business.