Risk management and why it matters to you

Contracts, waivers, certificates — oh my! Such legal jargon is sure to put you to sleep, but if you don’t pay attention, it could end up costing you.

Have you ever been in any of the following situations?

• Selling a product at a market
• Purchasing a home
• Starting a new job with a company
• Beginning freelance work for a client

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These events are major transactions of either goods or services. Two parties enter a contractual agreement, which outlines each party’s legal liability and what is expected during the life of that contract. Both parties have an understanding of expectations and responsibilities.

What is risk management?

We view risk as a perceived loss or an undesirable outcome. Greater risks could result in more money lost. To manage risk, we strategize ways to reduce or to transfer risk onto others, thus reducing our liability.

Benefits for the small business owner

In addition to reducing one’s own liability, risk management also offers many benefits:

• Protects brand image and reputation
• Protects people and the environment from harm
• Increases stability and sustainability of operations
• Saves resources and creates leaner operations due to less claims

Risk management tools

Some invaluable risk management tools you can use in your business include the following:

• Insurance certificates
• Contracts
• Warning signs
• Waivers

Insurance certificates

Doctors who practice medicine are required to have malpractice insurance, which covers their risk of lawsuits over professional negligence. Similarly, depending on the type of operation you run, obtaining the correct type of insurance certificate can lower your business risk and provide peace of mind.

Reducing risk with insurance

Shop around for a commercial insurance broker or agent who is familiar with your area of business. Also spend time analyzing cost-effective ways of handling and minimizing risk. This can include any of the following:

• Engineering works
• Installation of appropriate prevention alarms or tools
• Security installation
• Safety installation
• Removal or isolation of dangerous or hazardous goods
• Development of a disaster recovery plan for personnel and data files

Contracts

Always have it in writing

When creating a contractual agreement, it is wise to have a lawyer present for legal guidance. They ensure that liability has been transferred and that the legal document is properly worded. Any mistakes in the wording could void the contract and release the other party of liabilities. The lawyer also stands as a witness to the transaction. A contract is legally enforceable and binding.

To enter a contract, the following criteria must be met:

• Both parties must have the intent to enter a legal relationship.
• There is a transaction of buying, selling or exchanging something of value, whether a good or service, that is subject to conditions outlined by the contract.
• Both parties must accept the terms of the contract.
• Both parties must receive something of value. For example, a freelance photographer signs a contract to provide photographs of five events within a specified time frame in exchange for a disclosed sum of money outlined in the contract.

Warning signs

Remember the woman who put a cup of scalding-hot coffee between her knees while in her car and then sued McDonald’s for the consequent burns? Common sense would dictate to not put a scalding-hot cup of coffee between your legs or you might injure yourself, but the business could have placed a warning label on the cup stating, “Allow to cool before enjoying.”

Effective use of signs helps identify hazards or provide information. It also helps a business or individual avoid risk or potential losses. To ensure the message is clear, an effective sign has these qualities:

• Simple in nature
• Easy to understand
• Visible
• Universally recognized, with a common language

Waivers

Like disclaimers, waivers are clauses that remove a customer’s right to make a claim against or sue an individual or business over a product or service. Waivers are best drafted with the advice of a lawyer. When waivers cannot be used, consent forms are easy substitutes.

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