5Risk Is InevitableEvery business faces risk—the possibility of loss or injury.Business risks fall into two general categories:speculative riskpure risk
6Speculative RiskMost business decisions, such as marketing a new product, involve speculative risk.speculative riskrisk that is inherent to a business, involving the chance of either profit or loss
7Pure RiskA natural disaster, such as a flood, or an accident involving a customer or an employee is a pure risk for a business owner.pure riskthe threat of a loss to a business without any possibility of gain, such as robbery or employee theft
8Pure Risk The three categories of pure risk are: Crime Natural disastersAccidents
9CrimeSmall businesses are 35 times more likely than large businesses to be victims of crime, such as:shopliftingemployee theftburglaryrobberystolen credit cardsbad checkscounterfeit moneycyber crime
10Shoplifting Techniques to reduce shoplifting include: Train employees to recognize shoplifters.Keep the store well lit and merchandise visible.Employ two-way mirrors, peepholes, or closed-circuit TV.Use tamper-proof price tickets or electronic tags.Hire a uniformed security guard.
11Employee Theft Ways to discourage employee theft include: Establish policies and communicate them verbally and in writing.Lock up all doors that do not need to be used for entry or exit.Watch your trash for stolen items.Control the distribution of keys and other security devices.
12BurglaryThe problem of burglary is growing, but there are ways for business owners to minimize their risks.burglarythe act of breaking into and entering a building with the intent to commit a felony (a serious crime)
13RobberyIt is the business owner’s responsibility to protect employees and customers from crimes such as robbery by letting the robber take what he or she wants.robberythe taking of property by force or threat, usually by means of a weapon
14Stolen Credit CardsSince credit cards can be a source of financial loss to a business, an electronic credit card authorizer machine can be a valuable tool.electronic credit card authorizera machine that verifies whether a credit card is good (that is, not stolen or invalid)
15Natural DisastersMany owners suffer losses not only from crime, but from natural disasters such as fires, earthquakes, tornadoes, and floods.
16Natural DisastersYou can protect your business against fire by installing smoke detectors and sprinkler systems. Protect your cash and documents by storing them in a fireproof safe.
17Accidents and InjuryAccidents, another risk businesses face, can be financially devastating if a small business is held responsible for negligence.negligencethe failure to exercise reasonable care
18After You Read 1. Explain why risk is inevitable. Risk is a part of a business’s daily operations; for example, the risk of customers not paying when you extend them credit and the risk of a building being destroyed by a natural disaster.
19After You Read 2. Describe speculative risk. Speculative risk involves taking a chance for profit or loss; the risk is inherent to the business.
20After You Read 3. Describe three categories of pure risk. Crime includes shoplifting, employee theft, burglary, robbery, stolen credit cards and bad checks, and computer crime. Natural disasters include fires, earthquakes, tornadoes, and floods. Accidents and injury can happen to workers and customers.
21Section Objectives List the four risk management strategies. Describe the steps involved in selecting an insurance agent.Discuss the procedures for deciding on security measures.Develop emergency response plans for potential crises.
22The Main IdeaIt is impossible to completely protect your business from pure risks, but you can lessen their impact through risk management and planning.
26Risk Reduction Business owners should take these steps to reduce risk: Design work areas to lower the chance of accidents or fire.Communicate with and educate employees on safety practices.Check and service safety equipment.Test company products under the most extreme conditions in which they will be used.
27Risk TransferA third strategy—risk transfer—means buying insurance and paying a premium to cover any losses, which transfers some of your risk to an insurance company.premiumthe price of insurance a person or business pays for a specified risk for a specified time
28Four Types of Business Insurance Risk TransferFour Types of Business InsuranceProperty InsuranceCasualty InsuranceLife InsuranceWorkers’ Compensation Insurance28
29Risk TransferBusiness interruption insurance allows a business owner to continue paying important expenses if the business is shut down due to property damage.business interruption insuranceinsurance coverage against potential losses that result from having to close a business for insurable reasons; insurance pays net profits and expenses while a business is shut down for repairs or rebuilding
30Risk TransferIf a customer is injured on your business premises, casualty insurance will offer you protection.casualty insuranceinsurance coverage for loss or liability arising from a sudden, unexpected event such as an accident and for the cost of defending a business in court against claims of property damage
31Risk TransferCompanies that advertise can protect themselves by purchasing errors and omissions insurance.errors and omissions insuranceinsurance coverage for any loss sustained because of an error or oversight on a business’s part, such as a mistake in advertising
32Risk TransferManufacturers can protect themselves by purchasing product liability insurance.product liability insuranceinsurance coverage that protects a business from injury claims that result from use of the business’s products
33Risk TransferFidelity bonds and performance bonds are types of casualty insurance.performance bondsinsurance coverage that protects a business if work or a contract is not finished on time or as agreedfidelity bondsa form of insurance that protects a company in case of employee theft
34Risk TransferBusiness owners are required to provide workers’ compensation insurance for their employees.workers’ compensation insuranceinsurance that is required by the government and paid for by employers to provide medical and income benefits to employees injured on the job, or for job-related illnesses
35Choosing Safety and Security Precautions Security measure options include:secure doors and windowsburglar alarm systemspanic buttonscard-access systemsclosed-circuit TV monitorsfire alarmssmoke detectorssprinkler systems
36Planning for Emergencies Your risk management objective should be to have procedures in place before a crisis occurs.
37Planning for Emergencies To prepare for emergencies:Compile emergency phone numbers and floor plans.Keep important records tagged for quick removal.Educate employees about emergency plans.Carry out practice emergency drills on a regular basis.
38After You Read 1. List the four risk management strategies The four risk management strategies are risk avoidance, risk reduction, risk transfer, and risk retention.
39After You Read2. Describe the steps involved in selecting an insurance agent.Selecting an insurance agent involves defining the risks your business will face, determining insurance requirements in your state, and talking to different types of insurance agents to determine what they can offer you in the way of service and products.
40After You Read3. Discuss the procedures for deciding on security measures.You should assess your security needs, and then have a professional security company conduct a review. The company’s representative can identify weaknesses and areas of concern. He or she can also help you prioritize your security needs.
41After You Read4. Develop emergency response plans for potential crises.Plans should include a list of priorities and actions to be taken. You should gather information such as emergency phone numbers and floor plans. You should tag important records. Once the plans are complete, you need to distribute copies to employees and provide training.