Effective Risk Management for Business Crisis

New Zealand is a nation with a high percentage of Small and Medium Enterprise (SME) businesses. Just under 20% of the NZ workforce are self employed and of those self employed 90% have 4 employees or less. 63% of Small businesses that stop trading do so due to a key person or business owner being injured or sick. Under the Companies Act 1993, Company Directors duties included being accountable for effective risk management to ensure their organisation can “survive” or at least exit gracefully from credible foreseeable crises. It is well known that most Kiwi businesses do not have an effective “risk Strategy” for key people or owners suffering from a sickness or injury. There are three key areas of risk for a business and its owners;

· Shareholder protection – if a shareholder is forced to exit the business due to sickness or injury does the business have enough cash assets or Insurance cover to pay out their investment in to the business. Does the business that have an effective and up to date “buy-sell” agreement between partners.

· Business continuation – Is there an effective strategy in place for the business to address a key person (someone who generates more than 25% of the business income) being unable to work due to sickness or injury for an extended period of time (eg up to a year)?

· Personal insurance – do the Shareholder/owners have enough personal cash assets or income to meet their personal outgoings (including mortgage payments, living expenses, etc) if they were unable to work

Risk management isn’t just about having Insurance or cash available. It’s about having the correct contingency plan in place so that everyone’s expectations are met should a Crisis Happen. Together we work with O’Hagan Home Loans and Insurance who specialise in Business Crisis planning. They can guide business owners to develop an effective Risk Management Strategy to ensure they not only comply with the Companies Act 1993 but also allows for a smooth and transition in and out of the Crisis itself.