Dry Cleaning Business Risk Management

While there are many ways a company can structure a risk management plan, the steps generally consist of risk identification, assessment, and control. Businesses must continuously monitor and review risks. Operating a dry cleaning business involves proactively preventing various unforeseen accidents or risks, which includes decision-making that could affect the entire business, minimizing daily operational losses, reducing costs, and appropriately managing resources.

Recently, ongoing business deterioration has led to increased problems among various stakeholders. Disputes between landlords and businesses regarding leases and rent, and conflicts between businesses and employees concerning wages, are becoming more frequent. The first step in implementing a risk management plan is to identify potential risks.

As with any business, significant management efforts are dedicated to proactively preventing various unforeseen accidents or risks. Risk management primarily involves:

1.  Risk Avoidance: Completely avoiding the risk of occurrence.

2.  Risk Transfer: Transferring the risk to another party.

3.  Risk Mitigation or Prevention: Reducing or preventing risk factors.

4.  Risk Retention: Accepting the risk as is but minimizing losses (e.g., through deductibles, self-insurance).

In the dry cleaning business, one way to primarily implement Risk Avoidance is to eliminate contamination issues at the source by operating with alternative solvent machines or wet cleaning methods. Hiring qualified staff and maintaining compliance with regulations can also proactively avoid risks.

Secondly, Risk Transfer, which involves purchasing insurance, is a way to prevent risks and financial losses. In the event of an accident, economic losses are compensated according to the insurance company’s policy, or if the company is responsible, the insurer provides a legal defense on behalf of the company. The specifics include:

 1. Protection of Business Assets

Managing business assets requires assessing potential risks to those assets and controlling them. It is important to create a comprehensive list of all assets to appropriately determine the impact of loss due to accidents on the business and the scope of compensation when purchasing insurance. Compensation for business assets is offered in various forms to suit the business’s needs, but common compensation amounts include the Replacement Cost Value of the building and business property and the Actual Cash Value of the business property.

 2. Business Interruption

Is the business prepared to withstand an accident or disaster? If a fire temporarily makes the facility unusable, the business may need to relocate to a temporary location while repairs are made, or operations may need to cease for a considerable period. To mitigate this risk, Business Interruption coverage is included in the business insurance policy. This protects the business by covering operating expenses and lost income while the premises are being repaired and restored.

 3. Liability Loss

Unexpected accidents can lead to unavoidable liability issues. Proper liability insurance protects the business. Liability insurance provides coverage for bodily injury or other physical injuries resulting from products, premises, or operations, personal injury (slander or libel), advertising injury, and property damage. With appropriate liability insurance, the business can continue normal operations while addressing real or fraudulent claims of negligence or wrongdoing, and it provides compensation for the costs of claim defense and settlement.

 4. Employee Injury/Illness

The business must manage its duty regarding employee health and safety. The business is responsible for compensating workers who are injured or become ill during the course of employment. Workers’ Compensation Insurance is mandated by state regulations. Beyond the initial treatment costs and lost production time from an employee accident, workplace injuries can lead to an increased premium for several years due to surcharges applied to the workers’ compensation insurance calculation. Therefore, managing accidents and promoting safety can lower workers’ compensation premiums. Establishing proper preventive procedures can significantly reduce the severity of workers’ compensation claims.

 5. Electronic Data and Computer Resource Management

As with all industries, the business can be exposed to cybercrime. The cost resulting from a data breach involving hundreds or thousands of customer records can cause enormous damage to the business. If the business stores customer records electronically, it is crucial to establish robust security measures. In addition to taking preventive measures to reduce internet-based exposure, coverage like Cyber Liability Insurance can protect the business from damages resulting from cyberattacks, data breaches, and other internet-based exposures.

 6. Environmental Pollution Risk

As the dry cleaning industry shifts from using Perc (Perchloroethylene) to alternative solvents, the awareness of environmental pollution might decrease. However, all business insurance policies typically exclude compensation for damages resulting from long-term Perc contamination, leaving the business exposed to serious environmental losses. The most overlooked potential source of environmental pollution in a dry cleaning facility is the improper disposal of separated water from the cleaning machines. Some businesses still believe that water from hydrocarbon or other alternative equipment can be safely disposed of in a septic tank or other sewers. However, state regulations mandate that this water be treated the same as separated water from Perc. Using a waste disposal company or an economically cheaper vaporizer to vent it into the atmosphere can reduce pollution issues.

 7. Employment and Wage Management

There is a risk of various legal issues arising in the area of employee management. Defending against legal problems can be costly and time-consuming. Businesses should carefully review their management practices to ensure they can defend themselves against accusations of unfair employment practices. Employment Practices Liability Insurance (EPLI), which protects the company from lawsuits related to wrongful termination, discrimination (e.g., age, gender, race, disability), or sexual harassment, is typically included in business insurance.

Next is the management method of Risk Mitigation or Prevention. This involves managing safety according to OSHA regulations, managing employee wages and labor relations, and managing environmental compliance, all aimed at providing a safe environment for both employees and customers and minimizing the occurrence of accidents. Keeping NESHAP records while operating a dry cleaning business is also a form of management. Businesses must always exercise reasonable care for workplace safety, including employee training and regular inspections, to address the various risks faced daily. Management of Employee Dishonesty and Money and Securities is also necessary. This includes regular cash deposits, monitoring and security equipment to prevent theft, and management practices to proactively prepare for risks to customers and the business due to customer data leakage from increased computer and credit card use.