Small firms are confronted with risks of various kinds from the start to the end of operations. These risks, when ignored, may cause the financial ruin of the firm. If the small business operator wants his business to survive and grow, he must find some ways to effectively manage risks.

Speculative risks involves a chance of either profit or loss and may be reduced through careful planning. Pure risks involves a threat of loss with no chance of profits and which may be dealt with by using risk management techniques.

The process of effectively reducing the adverse effects of risks is called risk management.

Pure risks may be avoided, reduced, assumed, or shifted. Risks shifted to insurance companies may take the form of the following coverages; life, fire, motor car, marine, surety, general liability, and miscellaneous insurance.