Bob Gauvreau outlines practical risk-management advice for small-business owners, emphasizing tailoring cash reserves to personal risk tolerance and recommending a conservative rule of thumb of about three months' operating expenses. He also reviews insurance options—life, critical illness, disability, and business-interruption—as key ways to protect the owner, family, employees, and operations against unexpected events.
Chapters
So let's talk about some risks that businesses face, especially when you're a small business. And one of those risks is around risk management. Now you may say, well, what is risk management, Bob? Well, really it's making sure that you're putting yourself in a position where you're avoiding risk or you're avoiding failure. Consequences. Now, there's a few things that we need to think of and one of the questions that I get a lot is how much should we have in our bank account so that we're safe? And I would say it's dependent on the person, right? Like I feel like I am an all in business owner. I am constantly reinvesting in building a business that helps more people. For me, my risk tolerance is much higher so that I have a lower amount in my bank account on a regular basis. Some people have a very low risk threshold and they need to have more money in their bank account. I have many clients who, if they get under $100,000 in their bank account, they start freaking out. And I completely understand it. So you need to understand where you fit in a risk management profile in order to understand how much cash you should have. As a general rule of thumb, you want to have access to working capital of about three months worth of your ongoing expenses. That I feel is a fairly conservative approach. I, I never have that much room in mind. But if I'm giving advice to people, that's probably a very conservative sort of balance that you should have in there. Just to make sure that if something were to happen in your business, if you were to get hit by a bus, that for the next three months your obligations are taken care of. But let's talk about risk management from a you getting hit by a bus standpoint. There's a few things that we can put in play from a risk management standpoint that helps protect you and your family. One is insurance. So thinking of life insurance, critical illness insurance, if you were to get cancer or if you were to have a health issue that would take you out of work, you could have an insurance policy that would give you the financial benefits that you need to continue to carry on. Disability insurance, same thing. If for some reason you became disabled, you want to make sure that you're able to still maintain your income, to have access to funds to maintain your obligations. But there's also things like business interruption insurance. If something were to happen, if you have a physical office and there were to be a flood and all of your equipment and files were destroyed, you want to make sure that insurance continues to pay your employees and fund you financially so that you can get everything back up and running in the short term. Insurance is a really key way to mitigate any sort of risk exposure that you have in your business. Having a safety net of cash inside your bank account is also a really great opportunity to make sure that your self risk mitigating your business by having access to those cash resources. Those will be two major ways that you should focus on risk mitigation in your business to avoid any potential issues that could come up in the future.
