How to build a loss reduction plan for your small business

A loss reduction plan is essential to combat business risks that are either inevitable or very likely to occur. The first stage of a loss reduction plan is to acknowledge the maximum potential loss by factoring in as many variables as possible. Once you have a good idea of what the potential loss could be, you then have to decide what you would consider to be a manageable or acceptable loss for your business to deal with. The complexities of modern day business structures mean that most businesses require loss reduction plans for a large number of potential risks.



Business insurance can of course cover losses for a wide range of situations from fraud to natural disasters, but blanket policies can leave a number of situations exposed. Every profession has unique insurance requirements, and the risk faced by a charitable organisation are very different from those faced by environmental consultant or accountant. Reviewing your business insurance should be the first step in any loss reduction plan, and speaking to a specialist professional risks insurance broker such as Bluefin Professions is crucial to tailor a bespoke policy to the unique requirements of your small business.


When analysing potential risks you have to run over every possible situation, but you of course can’t invest the same amount of time and finances into every single scenario, so decisions have to be made according to prioritisation of risk. With the current uncertainties in the financial markets, as well as in world economy, some risks are significantly less important or immediate and should be earmarked for future review in order to get a business up and on its feet. While no risk should be ignored, servicing every potential issue is an expensive and time consuming exercise for any new start-up. Businesses only have limited amounts of resources that they can invest in loss assessment and prevention, so that money has to be spent efficiently or it can become a potential loss risk itself.


Risk assessment isn’t just a job for consultants; it starts from the bottom up, and senior company executives should encourage employees to identify and analyse potential losses and risks at every level of the business. Employee involvement is one of the best ways to reduce losses that senior management and consultants may fail to identify. Many businesses now hold regular loss reduction workshops and training for all employees. John Lewis ran a very successful energy saving scheme that was cheap to implement. Their campaign to install “You’re Burning Our Bonus” signs above light switches in their warehouses, offices and staff only areas, successfully cut energy bills and reminded employees they too could have accumulative effects on a company’s loss management, through every day actions.


Historically the largest losses that businesses suffer are from long chains of individual mistakes/ errors of judgement, or from economics/ natural disasters. These can be very difficult to predict and defend against, but other leading losses such employee claims and compensation needn’t be something that your business needs to set aside a lot of money for. That money could be reinvested in better management and training, reconfigured health and safety practices and improved recruitment procedures. The money spent then becomes an investment for a better-run business that permanently reduces its loss potential.

This doesn’t mean that power cuts, natural disasters and acts of terrorism should be ignored as potential risks to your business; money should always be set aside and contingency plans made for such scenarios. Unfortunately there are no procedures that you can put in place that to eradicate these threats from a business.


Overall, regardless of what loss prevention plans you put into action, it must be up to date and amended regularly as the business changes. New clients, suppliers or outside influences all bring a new set of risks and potential losses with them, so every loss reduction plan must evolve and adapt as the company does.