Risky business: financial risk management and corporate decision-making

¶ … Risky Business." Specifically it will consider all the risk questions asked, would you open this business?

Vicky is assuming $50,000 in a personal note as her financial risk. That is a significant risk if the business fails, it could ruin her credit for years and keep her from opening another business.

There are numerous risks in renting motor scooters, from someone damaging the scooters due to poor driving or neglect, to someone being injured on the scooters and suing Vicky for damages. They could also injure someone else, and the victim could sue Vicky too, so the liabilities are very high in this case.

The risks to motor scooters or physical assets are that they deteriorate over time, and they depreciate, rather than appreciate in value. That means that Vicky will continually have to add stock to her fleet of scooters as they wear out or are damaged, and they won't be worth what she paid for them if she has to sell them to liquidate the business. In addition, they are not as useful or usable in the winter, so Vicky's business is seasonal, at best.

4. By hiring four people, Vicky is responsible for payroll, taxes, perhaps benefits, and the other costs associated with employees, from unemployment and disability insurance to filing social security and income tax reports after each pay period. She also has to ensure the business and the employees if they will be driving the scooters, and ensure that she hires people with good driving records who won't raise the cost of her insurance.

5. In Colorado, renting vehicles is taxed by the state and may be taxed by the county where Vicky's business is located, so she will have to collect sales taxes on all the scooters rented, and report it to the state. She will also have to pay to register all her vehicles in the state, and they will have to pass emissions tests every year. In addition, Colorado state laws mandate rates, territories, schedules, and services that rental agencies can use, and Vicky will have to have periodic safety inspections of her vehicles, as well. She also has to maintain the records of her rental patrons, and ensure their privacy by not releasing those records to the public.

6. Vicky will have to have motor vehicle liability insurance, (minimum $500,000), along with any other insurance her business requires, such as small business insurance that covers her property and employees. She also has to have a surety bond that is on file with the Colorado Public Utilities Commission.

7. Vicky will have to have liability insurance for her employees, especially if they operate the scooters, plus she will have to pay state insurance, such as unemployment, disability, and other insurance required by the state.

8. Vicky should structure her business so that renters sign a release that releases Vicky from damages in case of operator accident or error, renters have to be 21 years of age or older, have a valid driver's license, and they have to sign up for collision and liability coverage. However, even if they sign a release or waver, some accidents can still be her liability, so she has to make sure that the scooters are maintained regularly and are safe, and that she checks the driver's license records before she rents to anyone. Ultimately, there is little she can do to totally protect her business from liability, and that is why rental agencies cost so much to insure and protect.