Mitigating risk is an important component when managing your most important asset.
- One of the biggest threats to businesses of all sizes is cybercrime.
- Other risks to consider are asset concentration, fiduciary risk, and risks unique to the nature of your specific business.
- Planning ahead is critical to mitigate many different kinds of risk and protect your business from losses.
Entrepreneurs are risk takers by nature, leveraging their insight, hard work, and capital to create successful companies. But when the company you own is your main source of financial security, you need to protect it from unforeseen risks—like natural disaster, legal liability, and crime.
Unfortunately, many entrepreneurs who become business owners don’t think about specific kinds of risk until they’ve experienced a threat firsthand. Yet planning ahead is important to mitigate many different kinds of risk and protect your business from losses. What kinds of risks should you consider? Here are some key areas where you may wish to prepare and protect your business:
The risk of cybercrime
One of the biggest threats to businesses of all sizes is cybercrime. Business impersonation scams, wire transfer fraud, phishing schemes, and email compromise are just some of the more prevalent types of cybercrime affecting businesses today. Consider the hypothetical experience of William, the third-generation owner of a very successful manufacturing company. While not “high tech” in the traditional sense of the word, William’s company uses very sophisticated proprietary technology in its factories—and keeping it out of the hands of competitors is an important business objective. Imagine his dismay when he learned that the company’s computer systems had been hacked and processes that he had spent millions to develop were now in the hands of overseas competitors.
Think about this scenario with Lucinda, the owner of a high-end children’s clothing firm. Lucinda had been selling for years through her company’s website when customers began to complain about unusual credit card charges. Lucinda’s payment systems had been hacked, and she spent the next several years trying to rebuild trust among her customers. The risk is so great that today, many business owners are seeking protection through cybersecurity insurance. These policies typically cover damage to digital assets, business interruptions, and, sometimes, reputational harm. They can defray liability costs if you are sued, and may pay for forensic investigations, customer notification, credit monitoring, and legal and public relations services.
Asset concentration strategies
Cybercrime is, of course, not the only risk that business owners face. Asset concentration is another important threat—since the business typically makes up such a large proportion of an owner’s net worth, he or she is especially vulnerable to changes in its value.
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