How a Business Should Prepare for the Unforeseen? Essay

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Small business is the most important indicator of the development of a market economy. In this regard, the question arises of supporting small and medium-sized businesses. One of the areas of such support is insurance. The level of development of small businesses is one of the most important characteristics of the national economy, as it forms a competitive, civilized market relationship, contributes to improving the quality of goods, work, services, and entrepreneurial culture. Any organization needs to be ready to face challenges and losses in order to be resilient. It is especially true in the case of small businesses that are the most vulnerable to threats and disasters, such as hurricanes, pandemics, and family emergencies. There are two main approaches to ensuring the solidness of a small business. These include acquiring the correct insurance package and having a certain sum of money allocated for emergencies.

Modern business is closely associated with various risks, and this applies to both legal entities and individual entrepreneurs. The risks can be minimized by resorting to voluntary insurance, which is an essential part of risk management. The latter can play a central role in increasing the company’s competitiveness and success rate (Brustbauer, 2016). For example, New Zealand’s small businesses in agriculture are able to use flexible insurance programs in order to ensurerisk tolerancee (Olsen & Hasle, 2015). The US insurance system in business insurance is a complex system, with government intervention, it can be applied in practice in four forms. The latter includes subsidizing insurance premiums, covering administrative expenses of private insurance companies, compensating the trading expenses of private insurance companies, and reinsurance offers (McCallum & Knapp, 2016). In turn, the government is trying to minimize possible losses and damage through the example of compulsory insurance of business accounts.

By the source of occurrence, entrepreneurial risks can be divided into external and internal. The source of external risks is the external environment in relation to an entrepreneurial firm. An entrepreneur cannot influence them; he can only foresee and take them into account in his activities. Thus, external risks include those not directly related to the activities of the entrepreneur. The source of internal risks is the entrepreneurial activity itself. These risks arise in the case of poor management, erroneous marketing policies, the likelihood of losses resulting from equipment malfunctions and breakdowns, as well as internal company abuse. Financial risk control is to find sources of compensation for possible damage in cash. One of the ways to manage risk in business is insurance.

The need for small business insurance is explained by a number of main features that are characteristic of a small enterprise. This is weak financial stability, limited financial reserve, and the need for continuous development. Therefore, a small business should also have additional savings for emergency situations, where insurance does not cove itr. For instance, banks are more likely to lower lending to businesses during and after financial crises (Deyoung et al., 2015). Small businesses’ inability to be prepared for major risk events is one of the primary reasons for high rates of failure (Turner & Endres, 2017). Such an allocated sum of money will allow small businesses to survive prolonged lockdowns during a pandemic or other crises.

In conclusion, the problems of risk management in small businesses have specific features associated with the lack of necessary knowledge and skills of entrepreneurs, as well as limited equity and difficulties in obtaining financial support. Small businesses should acquire the correct insurance package and have substantial savings for emergencies not covered by insurance. Both external and internal factors need to be taken into account in case of risk instances.

References

Brustbauer, J. (2016). Enterprise risk management in SMEs: Towards a structural model. International Small Business Journal, 34(1), 70-85.

Deyoung, R., Gron, A., Torna, G., & Winton, A. (2015). Risk overhang and loan portfolio decisions: Small business loan supply before and during the financial crisis. The Journal of Finance, 70(6), 2451-2488.

McCallum, B. T., & Knapp, M. C. (2016). Coping with catastrophes business interruption insurance claims. CPA Journal, 86(5), 54-59.

Olsen, K. B., & Hasle, P. (2015). The role of intermediaries in delivering an occupational health and safety program designed for small businesses – A case study of an insurance incentive prprogramn the agriculture sector. Safety Science, 71(C), 242-252.

Turner, S., & Endres, A. (2017). Strategies for enhancing small business owners’ success rates. International Journal of Applied Management & Technology, 16(1), 103-108.

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IvyPanda. "How a Business Should Prepare for the Unforeseen?" February 8, 2022. https://ivypanda.com/essays/how-a-business-should-prepare-for-the-unforeseen/.

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