PPS webinar Part 2: Small business, big risk
This webinar was presented by Marlon Goss, Head of PPS Specialist Support Services; Tiffany Boesch, PPS Group Chief Financial Officer; and Tracey Linnell, a Director at Morgan Solus.
The webinar explored the concept of risk from a business perspective, identified a few key risks common to all businesses, and presented a framework for analysing them.
“A business risk is anything that prevents a business from achieving its objectives. Generally, one wouldn’t want to do any risk planning in the midst of a crisis; those companies that did do some risk planning are finding themselves in a better position now that risk has become a real event. But even those with advanced risk management strategies would likely not have had a global pandemic on their risk register,” said Tiffany Boesch.
Risk management is assessing the likelihood of an adverse set of events happening versus the consequences, should they occur, on a sliding scale. You must plan on how to prevent them happening, or how you would react if they do, in other words your ability and readiness to respond. Then there is your risk appetite — what level of risk are you willing to accept for your business to achieve its goals. One option is to transfer the risk to a third party, such as an insurance company.
Here are some common risk management principles for small businesses. Usually we have time to plan how to deal with risk, but right now, with the Covid-19 crisis, we don’t. But you can still plan during the crisis, and how to deal with things when it is past.
Cash flow is a big problem for small businesses; many have reduced or no income streams at the moment. There is a lot of uncertainty. The first priority is to know your financial position, and have honest conversations within the business to assess where it stands.
Many businesses feel paralysed by inaction, but decisions have to be made. Eliminate all your unnecessary costs, ask for financial assistance from those who can provide it, and discuss credit extensions with your banks. Nobody knows how the crisis is going to pan out, but you need to be realistic and do whatever it takes to survive. If you can, set up cash reserves, or build them up again if you had them and used them. Investments can be tricky, and it is best to speak to financial advisers in this regard.
There are several new rules and regulations concerning running your business in the current environment, which are evolving as the levels of the lockdown change. Become familiar with this legislation, and find a trusted source for this information, so you don’t get fined or shut down. For example, what should you do if an employee is found to test positive for Covid-19?
Some unscrupulous people are taking advantage of the situation. Many employees are working from home, so beware of phishing and fraud. Do regular updates and keep your staff aware of cyber security issues.
In small businesses there are key people, and without their skills the business cannot survive. In larger businesses this can be covered by cross-skilling. In times of crisis this risk becomes greater. Key person insurance is a useful tool to transfer the risk of the financial impact of ill health, infirmity or death of a key person.
In small businesses there are key people, and without their skills the business cannot survive. In larger businesses this can be covered by cross-skilling or key person insurance. In times of crisis this risk becomes greater as key staff may become ill.
Business continuity planning
What do you do when it all goes wrong? Can you plan for disastrous events like a fire? Will your business be able to continue to serve its customers and stakeholders? For example, in 2010 Blackberry had an outage in its IT network and went down for four consecutive days. Consumers then moved on to iPhones and Samsung and other devices, so the knock-on pretty much crippled Blackberry. Business continuity ensures services or sales can be resumed promptly.
Business operations may be halted or curtailed by many things:
- Not having access to your business premises: what alternative plans can be made?
- Skillsets: how do you replace lost skillsets? Options are cross-skilling, outsourcing or recruiting ex-employees.
- The loss of critical equipment and documentation
- Interruptions in supply
- The compromising of IT & Data systems
Wealth-altering events such as death or crime have a primary effect on the owner of the business and may then have a secondary effect on the business itself. Business insurance is a risk policy that protects the business and its owners against the financial impact of losing a key employee or owner. A buy and sell agreement ensures that if a partner is no longer able to continue in the business due to death, sickness or injury that his or her interest can be bought at a set price which is funded by insurance, making the solution very cost effective.
Replacing critical equipment is an aspect that needs to be covered by businesses. There is also critical documentation, without which a company cannot function. If you have an absolutely critical supplier, you may want to inject a continuity clause in your policy to ensure they keep supplying you.
Marlon Goss provided an example: the lockdown caused problems with PPS as it had many office-based employees, who used desktops. But when PPS instituted its continuity plan, within a week the company was able to source all the laptops it needed to keep running.
Tracey Linnell said: “These days IT systems and data are essential: how do you restore vital data? We had two major clients in the last year that lost key data from aircons sparking fires, which made their data inaccessible, but their business interruption cover was able to reduce the financial impact.”
Business interruption cover compensates the policyholder not only for the immediate loss, but also consequential loss such as fixed costs, and the net profit that would have been earned if the insured event had not occurred. You can also apply for cover against costs to get the business running to its previous standard. Ideally, clients should be covered for all eventualities.
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