The best known form of risk transfer is insurance, which is the process by which an insurance company agrees to pay an individual or organization an agreed upon sum of money for a prospective future loss. Because of the importance of insurance in controlling risks, this topic will be explored in more detail later in this unit. In some instances, reducing certain risks may be too expensive. Generally, the small business owner will assume risks in which losses that occur will not produce significant financial consequences to the business. Determining the amount of loss that is significant is not a precise science.
Most entrepreneurs use a combination of methods when controlling and managing risks.
Jill Kearns was in her first year of college, and was running low on money. She considered getting a full-time job, but realized that she did not have enough time to do her studies and keep the job. Her solution was to start a small business venture with the members of a jazz band to which she belonged. They would hold jazz concerts and sell tickets to Jill's performances. Jill's idea for this venture came from her own and a friend's interest in jazz.