What is risk?
A risk isn’t something that actually happens–it’s the chance that something will happen (also known as the probability). If you are riding a skateboard, there’s a risk that you will fall off and sprain your ankle. If you actually do fall off and sprain your ankle, it’s no longer a risk–it’s a reality.
Examples of risk for a business:
* An employee might do something illegal
* Someone could get hurt on the store’s property
* A customer could be injured by a product
What to do about risk?
No matter what you do, there is always some chance that something bad will happen. But you can make that chance as small as possible.
If you ride a bike, you wear a helmet to reduce the risk of injury. Business risk is the same–think about the risks and do what you can to reduce them. A business that puts together bicycles could use a checklist of everything that needs to be tightened and tested before a bike is ready to sell.
Insurance is a way for groups of people or businesses to pool their risk. Imagine our bicycle business again. They sell a faulty bicycle and someone is injured. The business could have to pay the medical bills, which could put them out of business. With insurance, the medical bills would be paid for by the insurance company.
Contracts are legal agreements among people or groups. Think about a business that sells music lessons. Perhaps they have several teachers under contract. If teachers can go solo and take students with them, the business will not survive long. The business should have a “non-compete” agreement that says that the student relationship belongs to the business, not the teacher. Contracts can be used in lots of ways. If you think you need contracts in your business, consult a lawyer.