It’s a risky world for most people. Although we in the U.S. are (mostly) free from worrying about where the essentials are coming from, we are all exposed to risks based on our circumstances. Understanding the main categories of risk exposure will help a business owner plan for insurance to smooth financial burdens or take other actions to reduce risk. Beyond the essentials* every business should address their insurance provider, there are other risks to consider. Consider this list of categories as part of your planning. This is a good exercise for a senior management team to use in brainstorming risks that they might anticipate in as many categories as possible.
Once the team has identified a risk as having a high probability of occurring (or the cost of not addressing the risk could kill the company), it may be helpful to work with your insurance agent to determine what the costs of insuring against these additional risks might be so you can perform a cost/benefit analysis and/or to decide whether your overall portfolio is exposed to too much risk. If so, you can build your plan for 2022 to address that.
Types of Business Risks (with a few examples and Possible Mitigation Actions PMA)
- Strategic risk – from buying or selling companies, working in joint ventures and alliances with other companies without having done sufficient diligence to avoid risks from partners exposing your company to losses, etc. PMA: solid due diligence, well-crafted contracts that identify shared risks.
- Competitive risk – are you the smallest company of your type in the market? What are your competitors doing that might drive you out of the market for a desirable group of customers? PMA: Acquire or form a joint venture with a highly compatible provider for your mutual benefit.
- Political risk – are your customers (or your own company) located in areas with civil unrest or in danger of damage by rioting and looting? PMA: Security guards and up charging for work performed in those areas.
- Business partner risk – Are you culturally compatible with your business partner? Do you both honor confidentiality? Do you work together to solve contractual issues before they become a problem? Do your plans work together? PMA: Hire an executive coach to work with each of you on a one-to-one basis as well as together.
- Customer risk –have you overlooked the need to add services your competitor has that could cause you to lose business? Are you seeing price wars in your market or are competitors undercutting each other? PMA: Analyze your customers via surveys, focus groups, account manager reports, and direct interviews. Assess your adequacy. Try to form a joint venture. Raise prices on slow-pay customers.
- Employee/Subcontractor risk – Are your employees able to work in the US legally? Are you in danger of losing customers due to a lack of trained employee availability? PMA: Invest in an HR audit with a company familiar with landscape industry issues. Act on issues.
- Regulatory and legislative risk – Do you have the licenses and permits you need to run your business? Do you have exposure related to environmental risks? PMA: Have your admin prepare a report and tie financial award to 100% compliance.
- Reputational risk – Does your company’s brand and reputation match the desired vision? Is that your corporate image in the community? PMA: Focus group facilitated by a third party to get real input from your clients. Consider forming a small advisory board to tell you the truth.
- Technological risk – are you dealing with out-of-date systems and processes while everyone else in the industry is harnessing technology to support their operations? Are you managing your customer and employees’ privacy as well as your own? PMA: Tap into tech. expertise in the industry. Choose someone you trust (other than a vendor) to help your team decide which software provider is the best fit for your business.
- Operational risk – are your facilities safe and adequate for the business? Do you have internal controls and processes to run the business? PMA: Ask your supervisors and managers responsible for operations to make a list of issues and how they would address them.
- Financial risk – do you have sufficient cash flow reserves and/or access to LOC at the best rate to run the business? Do you have too much (or not enough) debt to achieve the best return on your investment while continuing to run the business profitably? PMA: If you don’t have a finance person, find** a part-time one to review your financial results quarterly. This person can work with your landscape industry consultant to identify key measures of success, set benchmarks, and report quarterly on progress.
- Supply chain risk – do you have adequate access to hardscape, plant, and other materials within your cost model to perform your services? PMA: Consider the option of buying in advance and holding some inventory for particularly sensitive materials. Talk to a nursery about special pricing for materials you can use that they are trying to reduce.
*Essentials: General Commercial Liability, Workman’s Comp, Employment Practices, Medical, etc.
**I would ask my CPA first.
If you’d like to further discuss how to handle risk mitigation in your company, or you are thinking about buying, selling, or exiting your business, let’s have a conversation. In addition, we can help you determine your readiness for sale, selling, or buying a company, or help with an existing acquisition.
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