By Juan José Pérez, President, Nationwide Corporate Solutions.
In today’s increasingly unpredictable business landscape, small- and mid-sized business owners face an array of challenges and uncertainties that can disrupt their operations and impede their growth.
Some of the biggest risk exposures today stem from economic conditions, with a recent survey from our company finding two-thirds of business owners expect a recession in the next six months—and the majority of this group expect it will be worse than the Great Recession of 2007 to 2009.
On top of these economic pressures, business owners are facing more complexities due to digitization and rapid advancements in AI, cybersecurity vulnerabilities, supply chain challenges and evolving government regulations. They also face newer risks, such as geopolitical uncertainty, decisions about when (or if) to return their workforce to the office and much more.
Navigating today’s volatile business environment—and preparing for whatever curveballs come next—requires comprehensive risk-management strategies. Understandably, many business owners don’t have the expertise or time to handle that themselves. That’s where risk management partners, including financial advisors, insurance professionals, attorneys, cyber security experts, banking partners and others can step in as critical resources, providing expertise, guidance and solutions to help safeguard businesses against potential pitfalls. (Full disclosure: My company offers some of these services, as do others.)
Here are a few key considerations to help you identify and engage effective risk-management partners.
1. Start with a quality financial professional or advisor.
If you don’t have one or are wondering if existing partners are the best fit for your business, you can begin by talking to other business leaders in your network. Their experiences will often tell you more than any website or marketing brochure. Once you’ve identified a few candidates, I recommend the following steps:
• Conduct interviews. This helps you find the partner who aligns the most with your needs. You can expect them to ask questions about your current investments, financial goals, insurance needs, retirement plans and level of investment risk. Be sure to ask for references.
• Check their credentials. Certifications don’t ensure competence, but it’s ideal to partner with a licensed professional. Common designations include Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Chartered Financial Consultant (ChFC), Certified Investment Management Analyst (CIMA), Certified Public Accountant (CPA) and Chartered Life Underwriter (CLU).
• Ask how they’re compensated. There’s no right or wrong way, but be sure it aligns with what you’re comfortable with. Some investment professionals are paid a commission, others charge a fee and some charge a fee plus commission.
• Learn about their connections. A financial professional or advisor can often serve as a “risk management quarterback” by connecting you with other, more specialized partners in their network, including commercial insurance agents, benefits consultants, lenders, attorneys or information technology experts.
2. Focus on your most important asset: your talent.
With many fearing the worst in terms of economic conditions, it’s easy to let emotion drive decision making. However, it’s important to remember that cutting your top talent or failing to invest in the benefits or compensation that make them want to stay with your company carries its own risk. When economic conditions improve, you want to be ready to capitalize on the environment instead of watching your competitors do so while you rebuild your team. If you don’t understand your options, you may be at risk of losing your most important asset: your people.
When seeking a financial advisor, look for one with a strong network of key partners who can help provide guidance and support in areas such as compensation planning, financial wellness programs and succession planning. They should also be able to help you create a competitive retirement benefits package. The recently passed SECURE 2.0 Act makes it easier and more affordable for business owners to offer employer-sponsored retirement plans, but this new legislation can be difficult to navigate on your own. In fact, our survey found that small- and mid-size business owners have limited knowledge of the provisions of the new legislation that make it easier to provide employee benefits. A skilled partner should be able to help you navigate such legislation for the best outcome.
3. Think broadly when planning for risk.
Most organizations face preventable, strategic and external threats that can be managed by identifying and planning for the risk. When the pandemic struck, many business leaders were blindsided by risks they never imagined. As quarantines took hold, a 2020 study found firms with monthly expenses over $10,000 had only enough cash on hand to last roughly two weeks. The pandemic served as a harsh reminder of the importance of thinking ahead and preparing for the unexpected. A good risk-management partner can help provide this forward-thinking and contingency planning.
When engaging new or existing risk management partners, make sure your discussion includes the following types of risks to identify potential gaps in your strategy.
• People Risk: Does your company offer the benefits, resources and incentives to attract, retain and develop the workforce you need to persevere and grow?
• Financial Risk: How would increasing interest rates, an economic downturn, long-term inflation or interruptions to your business’ cash flow impact your ability to meet customer needs?
• Liability Risk: How would a weather event, accident or lawsuit impact your business? Does your insurance policy cover everything you think it does? Are you overlooking a liability issue by not working with an attorney?
• Partner Risk: Do the institutions and individuals managing your company’s risk have the track record or financial strength to demonstrate you can count on them to be there when you need them? Do they have certifications that align with industry-wide ethical and business standards? Does their reputation and brand align with yours?
When you identify the gaps in your strategy, you may identify the opportunity to leverage existing partners to address them—or the need to bring a new partner to the table.
Business owners are risk-takers by nature. But hoping for the best and figuring things out as you go may set you up for a preventable stumble. A good risk-management partner should be willing and able to help you identify and manage risks to strengthen the resilience of your company, protect your reputation and capitalize on opportunities amid uncertainty.
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