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The Importance of Risk Management. The common concept of risk management among small business owners involves simply purchasing regular insurance protection. Other aspects of protection often escape consideration. Risk management is much more complex than simply purchasing insurance and implementing rules. These are both necessary parts of every plan. However, there are many other things to consider.

Tips for Implementing a Realistic Risk Management Plan. It's best to start with a simple plan that is easy to follow. The prime goals should be mitigation and management of business risks. After trying the plan, analyze it and make any necessary changes or additions. Consider the following steps in order to make a positive change:

1. Identify the Risks. There are some risks that are universal. However, there are also some that are specific only to certain types of businesses. It's important to conduct a thorough risk analysis to identify them. The best way to accomplish this is to use a standard risk checklist. There is a Small Business Insurance & Risk Management Guide available from the Small Business Administration. This guide is helpful in outlining potential risks. While going through the list, pay close attention. Most business owners are able to think of other potential risks that are unique to their situation during this process. Some of the most important initial risks to consider include:

• Property losses that occur from loss of use, physical damage or criminal activity.
• Liability losses that happen to customers and are the fault of the business.
• Business interruption losses stemming from fires, natural disasters or other unpredictable occurrences.
• Key person losses or the loss of important employees, which results in a negative impact on the company.
• Employee injury losses that occur when an employee is injured on the job and must be compensated.

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2. Determine How Vulnerable the Company Is to Various Risks. Consider the various risks and how much each one would cost the company. Not all types of companies are as vulnerable as others. Companies with high vulnerability to expensive risks need to make those specific areas a strong priority in their risk management plan. The risks that aren't worth worrying about should receive a much lower priority. Keep in mind that it's not feasible to eliminate every possible risk. However, some need much more consideration than others. For example, a paper manufacturing company should consider the risk of employees losing limbs on dangerous presses in the manufacturing line before they become concerned with possible paper cuts to fingers of employees in the inspection department. As an overall rule, the cost of preventing the risk should never exceed the amount the estimated loss that might result from that risk.

3. Create a Contingency Plan. There is more to this aspect than purchasing insurance. Be sure to implement plans that place employee safety higher than efficiency. Install a security system to protect all property from theft and damage. Avoid transactions with unknown customers. Implement plans to train supervisors to minimize loss of key employees.

4. Purchase Adequate Insurance. In addition to purchasing enough insurance, it's imperative to purchase the right types. Some of the key types of coverage to purchase include:

• General Liability insurance, which covers the legal liabilities faced from injuries to third parties. Medical expenses, property damage and bodily damage are typically covered.
• Professional Liability insurance, which covers allegations of malpractice, negligence and other errors in services.
• Product Liability insurance, which covers the expenses related to injuries or damages resulting from a defective product. This is essential for all companies producing tangible products.
• Commercial Property insurance, which covers loss and damage costs for business properties. Business interruption is typically covered by this provision.

5. Revise as Necessary. Be sure to review and update risk management plans regularly. Reassess risks and make any necessary changes. It's important to have regular review meetings with department heads, owners and a risk management consultant. Be sure to inform the insurance company of any changes or new risks.

Business owners who plan to raise capital from investors must be especially vigilant in their risk management planning. Having a good plan and updating it regularly is important for gaining their trust and making them comfortable with the opportunity to invest.

If you own a business and hire people, then you should keep these seven points in mind as you go about hiring workers as either employees or independent contractors:

1. If you, as an employer, intentionally or otherwise misclassified your workers, then you could suffer significant tax bills and be facing hefty penalties for not filing the appropriate tax forms and not paying employment taxes.
2. You should know and understand how the Internal Revenue Service (IRS) determines the relationship between a worker and a business. The IRS uses the following three factors in determining this relationship:
• Type of relationship, which means how both your business and the worker views the relationship.
• Financial control, which refers to whether or not your business can control or direct the business and monetary aspects of the worker's job.
• Behavioral control, which refers to whether or not your business can control or direct how work is done through means like training or instruction.
3. IRS Form SS-8, which is labeled as the Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, can be filed by employers and/or workers. This form essentially asks the IRS to determine if a specific worker's status should be classified as an employee or as an independent contractor. IRS form SS-8 can be obtained online at IRS.gov or by calling 1-800-829-3676.
4. Generally speaking, a worker should most likely be classified as an employee if the employer can direct or control what is being done and how it's done.
5. Generally speaking, a worker should most likely be classified as an independent contractor if the employer only directs or controls the result of the work, and not the manner, means, or methods being used to accomplish the end result.
6. Do ensure that workers are aware of their classification, or worker status. This will not only help them avoid higher tax bills, but also avoid losing any valuable benefits.
7. Check out the small business tab on the IRS.gov website and IRS publications 15-A, 1779, and 1976 to find out more about determining a worker's status as either an employee or as an independent contractor.