Small Business Management 12eLongenecker, …

1、financial management in the entrepreneurial firm 12e copyright by south-western college publishing. all rights reserved. 242 after studying this chapter, you should be able to: 1.define risk and explain the nature of risk. 2.explain how risk management can be used in coping with business risks. 3.de

2、scribe the risks associated with different types of assets, both physical and human. 4.explain the basic principles used in evaluating an insurance program and the fundamental requirements for obtaining insurance. 5.identify the different types of insurance coverage. copyright by south-western colle

3、ge publishing. all rights reserved. 243 risk the chance that a situation may end in loss or misfortune. market risk the uncertainty of a gain or a loss associated with an investment decision. pure risk the uncertainty associated with a situation where only loss or no loss can occurthere is no potent

4、ial for gain (only downside). copyright by south-western college publishing. all rights reserved. 244 risk management ways of coping with risk that are designed to preserve assets and the earning power of a firm. the process of risk management step1:identify risks. step 2: evaluate risks. step 3: se

5、lect methods to manage risk. step 4: implement the decision. step 5: evaluate and review. copyright by south-western college publishing. all rights reserved. 245 risk control minimizing potential losses by avoiding or reducing risk. risk avoidance preventing risk by choosing not to engage in hazardo

6、us activities. risk financing making funds available to cover losses that cannot be managed by risk control. copyright by south-western college publishing. all rights reserved. 246 risk transfer buying insurance or making contractual agreements with others to transfer risk. risk retention choosingwh

7、ether consciously or unconsciously, voluntarily or involuntarilyto manage risk internally. self-insurance designating part of a firms earnings as a cushion against possible future losses. copyright by south-western college publishing. all rights reserved. 247 high frequency low frequency high severi

8、ty risk avoidance risk reduction self-insurance contractual agreements low severity risk reduction risk retention risk retention table 24-1 copyright by south-western college publishing. all rights reserved. 248 fig 24-1 fire property risks natural disasters burglary and business swindles shopliftin

9、g on-premise injury competition from former employees loss of key executives employee dishonesty bad debts product liability personnel risks customer risks bankruptcy copyright by south-western college publishing. all rights reserved. 249 risk management differences from large firms: it is more diff

10、icult for small firms to get insurance coverage. large firms can assign responsibilities for risk management to a specialized staff manager. risk management is not something that requires immediate attention. copyright by south-western college publishing. all rights reserved. 2410 copyright by south

11、-western college publishing. all rights reserved. 2411 basic principles of a sound insurance program identify insurable business risks workers compensation and automobile liability insurance are required by law. limit coverage to major potential losses avoid overspending insurance resources. relate

12、premiums to probability of loss insure most improbable but critical losses first. copyright by south-western college publishing. all rights reserved. 2412 the risk must be calculable so that premiums can be calculated. the risk must exist in large enough numbers to allow the law of averages to work.

13、 the insured property must have commercial value. the policyholder must have an insurable interest in the property or person insured. copyright by south-western college publishing. all rights reserved. 2413 commercial property insurance coverage that protects against losses associated with damage to

14、 or loss of property. coinsurance clause business interruption insurance coverage of lost income and certain other expenses while the business is being rebuilt. dishonesty insurance coverage that protects the firm against employees crimes. copyright by south-western college publishing. all rights re

15、served. 2414 surety bonds coverage that protects against anothers failure to fulfill a contractual obligation. credit insurance coverage that protects against abnormal bad-debt losses. copyright by south-western college publishing. all rights reserved. 2415 type coverage general liability insurance protects against lawsuits brought by customers. employers liability insurance protects against lawsuits brought by employees who suffer injury. workers compensation insurance obli