Having your own business can be an extremely rewarding endeavor. All businesses encounter risks, but successful ones know how to approach those risks in a calculated and strategic fashion. However, even calculated decisions sometimes cannot predict situations that lead to financial loss.
Specifically, business losses occur when operating expenses exceed the revenue earned during a certain period. A wide range of variables can lead to business loss, such as natural disasters, cyber-attacks, and legal troubles.
Types of Large Losses
Generally, large losses in business can result from situations that inflate operational costs. Typical scenarios include the following:
- Natural disasters: Disasters are a major source of loss for businesses and consumers alike because they inflict serious damage on tangible assets like buildings and equipment. Such disasters include wildfires, floods, earthquakes, and hurricanes.
- Fires: Fires are also a significant cause of business losses because of their destructive nature. Without protection and prevention measures, fires can destroy a business’s buildings, documents, equipment, and other essential assets.
- Cyber-attacks: In today’s digital age, cyber-attacks are a significant problem for everyone. They can involve the breach of confidential information, such as client lists, proprietary operational information, financial accounts, and passwords. Importantly, cyber-attacks can lead to legal liability as well.
- Market Forces: Volatile market forces are also a major type of large loss, such as economic downturns and recessions.
- Legal Liability: Businesses must deal with a significant number of laws and regulations. Non-compliance can often lead to hefty fines, and the threat of litigation can result in significant damages awards against businesses.
Dealing with Large Losses
Recovering from large business losses involves rigor and taking a methodical approach to learning lessons from adversity. Combatting business losses requires identifying the cause of the loss and determining a strategic approach to preventing and mitigating future situations. Strategies business owners can implement include:
- Planning for Emergencies: Many people consider natural disasters and similar emergencies to be “unforeseen risks.” A savvy business owner understands that such disasters are an unfortunate reality. Establishing a response plan that outlines procedures for handling such scenarios can effectively mitigate the consequences of a natural disaster.
- Insurance: A comprehensive business insurance policy will cover certain losses, such as property damage, cyber-attacks, legal liability, or other conditions that would otherwise disrupt business operations.
- Redundant Systems: Risks such as natural disasters and cyber-attacks are significant threats to important data and documents, especially as we move towards paperless operations. Important documents and data must be backed up to minimize the financial risk and potential liability from data loss and cybersecurity breaches.
- Security: Establishing strong security measures is an effective countermeasure to the threat of loss due to theft. Hiring security personnel, installing closed-circuit television (CCTV) cameras and monitors, and installing security software on computer devices and networks are all important steps for preventing loss due to theft. Although security can be expensive upfront for some businesses, it can be a vital long-term cost-saving measure.
Your Partner in Recovery
Business owners cannot afford to be unprepared in the event of a large loss. That is why taking steps such as those outlined above is crucial to creating and maintaining a smooth and profitable business. If you have questions about the types of insurance policies and coverage solutions available for your operation, contact one of our local agents. Our team is here to prioritize your interests.