Safeguarding your business: expert advice on protecting your company from fire, theft and other disasters - excerpt from book 'How to Start, Run, and Stay in Business'

Black Enterprise, July, 1993 by Gregory F. Kishel, Patricia Gunter Kishel

The very act of forming your own business entails risk. The rewards of prosperity and self-fulfillment must be balanced against the risks of financial loss and personal dissatisfaction. There are no sure things in business. Still, such factors as planning, experience, adequate financing, managerial expertise, creativity, and a willingness to work hard can swing the odds in your favor. For these to be effective, though, you need an ongoing program of risk management.

Suppose any of the following should happen:

* Your building is damaged by fire.

* A customer is hurt in your store.

* An employee steals merchandise.

* A car drives through your store window.

* Your accountant embezzles a large sum of money.

* An employee is injured on the job.

* Your store is burglarized.

* Your business is suffering because of shoplifting.

* A partner dies.

What would you do? A likely answer is, "call my insurance agent." But relying on insurance is only one of the ways to deal with these hazards.

Risk Management

An effective program of risk management enables you to cope with risks by eliminating them, reducing them, accepting them, or transferring them. These methods can be used singly or in combination, depending on the risk as well as on your own circumstances.

Eliminating the risk. Certain risks can be entirely eliminated. Among these are the risk of employee injury because of substandard materials or unsafe equipment, the risk of customer injury because of a hazardous store layout and the risk of fire because of faulty wiring. There's no excuse for allowing risks that are solely the result of negligence or indifference. One who persists in doing so could wind up not only financially liable but criminally liable as well. And it's not enough merely to carry insurance. Gross negligence, or the flagrant violation of health and safety standards, is sufficient ground for an insurance carrier to void your policy.

Reducing the risks. It would be impossible for you to eliminate every business risk, even if you were aware of every one. Your best bet, then, is to reduce the risks. Close evaluation of your workplace, workers, and customers will enable you to take procautionary actions so as to reduce most of your business risks.

The risk of falling off a ladder can't be eliminated; but the use of safety ladders, with guard rails on either side, can reduce the risk. Keeping all merchandise boxes, cleaning supplies, tools, and electrical cords clear of customer walkways reduces the risk of having customers trip and injure themselves. The risks of breakage and theft can be reduced by displaying merchandise in locked cases. Electronic tags on morchandise, alert salespeople, closed circuit cameras, burglar alarms and security guards can also help you to combat theft.

Accepting the risk. Self-insurance, a method whereby you create your own contingency fund to pay for whatever business losses might arise, is another way of coping with risk. This enables a business to protect itself while at the same time avoiding payment of insurance premiums. Unfortunately, the protection this method provides is usually inadequate. Given current high replacement costs for buildings, equipment, furniture, and fixtures, as well as the staggering amounts of some judgment claims in liability cases, a small business that relies solely on self-insurance could easily be wiped out.

A policy of accepting the risk might be applied, however, when the risk cannot be eliminated and buying outside insurance is not profitable. For instance, if your losses from shoplifting are less than the insurance premiums to protect yourself against it, accepting the losses makes more sense. Furthermore, even when you do carry insurance against a particular type of risk, part of the risk usually must be accepted because of the policy's deductible provision.

Transferring the risk. The purchase of coverage from an insurance company enables businesses to transfer their risks. In exchange for a fee, the insurance company accepts the risks that the business wishes to be protected against. In effect, when you buy insurance, you arrange to absorb small periodic losses (premiums) rather than a large uncertain loss. If your property is to be adequately protected and large damage claims that result from public liability or employee injury suits are to be avoided, insurance is a necessity.

Types of Insurance Coverage

Fire insurance. In a standard fire insurance policy your building, the property contained within it, and property temporarily removed from it because of fire are protected against damage inflicted by fire or lightning. This coverage does not extend to accounting records, bills, deeds, money, securities, or manuscripts. Nor are you protected against such hazards as windstorms, hail, smoke, explosions, vandalism, automatic sprinkler leakage, and malicious mischief. To guard excluded valuables and protect yourself against loss from these hazards, you must obtain additional coverage. Neither fire resulting from war nor actions taken under the orders of a civil authority are covered by insurance.