A lot of businessmen and women do not pay enough attention to risk. This is true of IFA also. The IFA who does not concentrate on risk – on behalf of the client – runs the risk that his client will have unintended consequences in his/her portfolio.

How should a Businessman handle risk?

First of all he should enumerate the risk in his business. Some are easy to see and some are completely invisible.

Obvious risks – early death, critical illness, accident, and of course living too long.

Business risk – obsolescence of technology, imports, shortage of raw material, changing taste, apart from physical risks like flood, rain, fire, and people risk like theft, a MeToo incident in the place of business,…..etc. it is almost impossible for an outsider to even enumerate.

The risk that a businessman takes in his business has a major impact on his personal life and I plan to do a series of articles on risk. Risk as impacting an entrepreneur. Of course an entrepreneur can consult a risk expert. Unfortunately he is likely to be from the insurance industry (obviously did you say?) who might be more interested in selling.

So what should an entrepreneur do?

First step is to identify the risk. There is a risk that your phone costing Rs. 30k falls in a puddle. Dangerous? no you can handle the risk. Just imagine it falls 10 minutes before your flight is to depart, you do not have a print out of the ticket, and you are outside the airport. Risk? yes. Identifying the risk is not easy, and has to be done very diligently. It has to be a well established process in your business and all the employees should be taught the basics of risk identification.

• will this client pay on time?
• does he really need our product?
• will he understand the complexity of the product?
• how will I collect money from him?

could be the basics that even a salesman should know. Why am I mentioning this in a Personal finance website? Simply because the risk that a businessman takes in his business impacts his personal finance. One small mistake and he could jeopardize his personal finance.

What could be the risk in business?

Physical assets and property – which we considered above.

Ability to continue the business – physical, financial, human, intellectual, etc.

default, patents, contracts poorly drafted, pollution, change of law – just examples.

What can you do once you have identified the risk?

Avoid – a fast changing technology and you are not too keen, rock climbing, swimming – again just examples. You have to enumerate in your business.

Reduce risk – asking your 7 year old to wear a helmet and knee guards while learning how to skate or riding a cycle on the road. Wearing a seat belt while travelling by car.

Retain affordable risk – you may not have insured your mobile phone costing Rs. 50k but your car worth Rs. 40L would be insured. Your home loan and the Goals for your family would be insured. Some risks you keep, some you don’t.

Share risk – you agree to pay the first Rs. 20k of your medical bill. The remaining is insured. Makes sense, it reduces the premium.

Transfer risk – ask an insurance company to “own” the risk. For this you pay a “premium” for the risk transfer. The loss will be yours, but the insurer will pay you the money!

Lots to follow…