How to: Mitigate risk

It’s every snow fighter’s dream, to have a record-breaking snowfall, right? Well, unpredicted weather exposure can be a weight on a business. Too much snow can mean stress on equipment and employees, while too little can mean less revenue. But there are ways to mitigate a company’s risk from weather exposure like snow, rain and temperature.

Companies can take advantage of different structures in the financial market to protect them from these risks. The structures change based on how a business is run and the risk it faces, says Jeff Hodgson, president of Chicago Weather Brokerage, a firm that helps companies manage unpredictable weather exposure in partnership with Lawn & Landscape.

For instance, a landscape contractor with mostly per-push snow removal contracts stands to lose a lot of money if it doesn’t snow much. And, if he has mostly season-long contracts, he can get hammered if it snows a lot.

So, for example: Chicago usually gets about 38 inches of snow between December and March. A contractor with a lot of per-push business could buy an investment option for $60,000 that will pay him $25,000 per inch for every inch that it snows over 45 inches, capped at 55 inches or $250,000.

That way, he’s covered if Chicago gets more snow than average. If it snows less, he’s made up the cost of his investment thanks to his regular work. “It’s like a life insurance policy for your business,” Hodgson says.
 

1. Determine what weather component affects your business from a financial standpoint. Based on your geographic location, it might be temperature, rain or snow.
    
2. Once you know what your risk is, determine where the risk is – is it too much or too little? “For a landscaper, it could be an excessively dry or excessively wet summer,” Hodgson says.”
    
3. Ask yourself when your risk occurs and at what length of time. What is the time frame of your risk: one month, one season, two seasons?
    
4. What is the financial affect of the risk you’ve identified for your business? “You have to determine what the value is, what does it actually mean to your business to get that weather or to not get that weather,” Hodgson says.
    
5. Contact an adviser to decide what financial structure is best to help mitigate or diffuse the risk. Some options work best for too much rain and others for too little.