What is a Risk Assessment and Why Your Business Needs One

As we start a new calendar year, the strategic plan for the small to midsized business focuses on growth of the business, either through organic growth in the business, or through the purchase of good fit horizontal or vertical business purchases to give more capacity to the business so it will grow in a significant fashion.

That business owner can have all the hope in the world that plan will produce the results that it should. However, anyone who has been in business for any length of time, knows from having done SWOT analysis that there may be some issues that stand in the way of producing the results that the business owner desires. What are the threats that are facing the business and how can these be addressed? To examine this question thoroughly requires a risk assessment.

There are some risk assessments that relate to the entity itself, reviewing ownership of a controlled group, that for legal and tax purposes the business ownership and legal positions are consistent. Is the business current with all governmental reporting? In addition, the business may look at their organizational charts, along with detailed roles and responsibilities – are the right people in the right seats? Is there proper current insurance covering all aspects of the business? Have all normal contracts, leases, customer contracts, supplier contracts, and vendor contracts, been reviewed to make sure that these contracts benefit the company? What are the succession plans for the business?

The above risk assessments are at the entity level of the business. Beyond that, there are a number of other things that need to be assessed for a risk analysis. For instance, for manufacturers, there are many more questions that should be addressed in depth, which will hopefully keep the company in growth mode, rather than causing the company to put out fires. Here are some examples for manufacturing companies:

• Property/buildings/facilities – Are these in good repair, free of safety concerns, ownership checked, is there any hazardous material stored onsite?
• Safety – Review the Emergency Action Plan, what is the condition of plant and equipment, have there been any OSHA citations, what is the company's injury history? Review the Worker's Compensation history and philosophy.
• Supplier Contracts – Where does the raw material come from? Do any of the raw materials have any hazardous issues attached to it? Are some of the parts assembled elsewhere? Where do packaging materials come from?
• Property Ownership – Review in depth the ownership of facilities, buildings, and real estate, review intellectual property (patents, trademarks, copyrights), inventory, and review satellite locations and subsidiaries.
• Labor – Review the workforce details – is the workforce unionized? What is the history and relationship with the union? Is there a significant temporary or contract workforce? What are the issues finding the right workers? What have the issues been in the worker's compensation area?
• Environmental – Have there been any violations or citations or open cases? What are the historical filings that the company has done? Are there environmental licenses and permits? Are there hazardous waste filings? Review the environmental compliance program, training, manuals, and documentation. Review contingency plans.
• Operations – What are the government authorizations and permits that the company has? Review material governmental regulatory findings. What are the other licenses that may be required?
• Logistics/freight operations – Review inbound and outbound logistics for the ownership transfer point. Who is responsible for safety, execution, and costs? If the business has a fleet, what is the incident history?

The risk assessment for all these items may take a significant amount of time. That may be true, but what is the cost in terms of time and effort if there is a major problem that could have been avoided, if you had done a proper risk assessment? If that happens, will the focus be on growth, or on putting out the “fire?”

The good news is you don't have to deal with all this yourself. Qualified business attorneys, especially those with Outsourced General Counsel experience, can assistant you in making sure you have reviewed everything that is necessary and put proper plans into place to avoid issues.

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Denice Gierach

Gierach Law Firm

Denice Gierach is an attorney, CPA, Northwestern University business master's graduate, and has owned several businesses from real estate to manufacturing. She is the lead attorney at Gierach Law Firm in the Chicago area. With more than 30 years of experience, she has been a respected and sought-after resource for businesses looking to grow, sell, solve problems, and succeed long term. Her insights across business areas gives a fuller lens to business issues and solutions, and helps businesses grow and succeed with less time spent on legal issues and other time-consuming problems.

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