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10 Small Business Risks and How to Manage Them

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Business owners are usually optimistic people. They plan for growth rather than dwell upon the possibility of disaster. However, as the COVID-19 pandemic demonstrated, even the most successful businesses face risks. So, even the slim chance of something outside of a business owners’ control damaging their company cannot be ignored.

The effects of COVID-19 on businesses have been dramatic and could not have been foreseen. However, there are other risks that could be equally devastating for a small business that can be planned for and managed.

The smart business owner will always be looking for growth opportunities. Even so, they will also be asking themselves, “what if?” The well-prepared business owner will be looking for ways to mitigate the common risks that small businesses face. Here are ten of the typical small business risks and some tips on how to manage them.

1. Competition

You can never afford to take your eye off the competition. If you let your guard down, you will soon find that competitors have dropped their prices, released new products, or have overtaken you in the search engine rankings. The only way to stay ahead of the competition is to monitor the market in which you operate. It would also help keep on top of developments in your industry and keep a close eye on new entrants into your space.

2. Cash Flow

Cash flow represents one of the most significant risks to small businesses. So, keep your cash flow forecast up to date and monitor your aged receivables. If cash flow is persistently negative, you will fall into debt, or you may have to close the business. Small enterprises do not generally have sufficient reserves to cushion the blow of a cash flow crisis. So, cash flow and receivables management should be one of the top priorities for a small business.

3. Fraud

There are many ways that a fraud could be committed against a small business. An employee might be stealing from you. Scammers could target your business. That new customer that you recently granted credit to might not be genuine. The best way to protect yourself against fraud is to implement robust security procedures and take nothing for granted. It would be best to complete background checks on all new employees, for example. It would also be wise to carry out thorough credit checks before you offer any customer credit. If you hold physical stocks, implement appropriate security precautions, such as installing security alarms and cameras. You can further protect your business against the effects of fraud by adding crime cover to your business insurance.

4. Property Damage

A small business’s most significant assets are likely to be buildings, vehicles, equipment, and inventory. All these valuable assets are at risk from fire, flood, and theft. It would be advisable, therefore, for businesses to take precautions to protect these items, and insurance cover should be taken out against the loss or damage of assets. The steps needed to safeguard assets include adequate security at business premises and installation of fire safety equipment, such as smoke alarms and fire extinguishers. It is not only the loss or damage of assets that need to be considered, though. There is also the impact on business operations that would be caused if assets were destroyed or stolen. So, it would be a good idea to consider business interruption insurance, which would cover the loss of income due to the loss of crucial assets.

5. Business Liability

Whenever you deal with third parties, however careful you are, you may be at risk of becoming involved in a costly legal dispute. The possible risks will vary depending on the type of company. They could include anything from a visitor to your premises slipping on a wet floor to a product liability compensation claim. If you do get embroiled in a legal dispute of this nature, you will need to pay the legal costs of mounting your defense, and you may need to pay damages. You can help avoid liability claims by undertaking a thorough risk assessment and taking appropriate steps to minimize the risks. However, it would also be wise to ensure that you have adequate business liability insurance, including general, professional, and product liability insurance if relevant.

6. Cyber Attacks

Data security breaches at large corporations make headline news. Still, small businesses are also at risk from cyber attacks, and small enterprises often do not have adequate protection build into their computer systems. The first step to protect your business against cyber attacks is to complete a full cybersecurity audit. Then, implement security software and protocols to protect your systems. It would also be wise to get cybersecurity insurance to cover you against any losses incurred from such crimes.

7. Supply Chain Disruption

Small businesses can sometimes be dependent on only one or a few critical suppliers. Small enterprises also have less purchasing power than large corporations, so they may find it more difficult to negotiate favorable terms with new vendors. Over-reliance on one supplier could be catastrophic if that supplier fails to deliver. The best way to mitigate this risk is to avoid over-reliance on one vendor wherever possible. Instead, build relationships with multiple suppliers so that you spread the risk of supply chain disruption to your business.

8. Loss of a Key Person

Small businesses are also often reliant on one or two key people. These crucial team members might be employees, or they could be business partners. One of these critical people leaving your company or becoming incapacitated could significantly impact the company’s profitability, and it may be some time before you find a replacement. It would be best not to allow a business to become too reliant on one individual. However, this is not always possible. If the loss of a crucial individual could lead to a business crisis, it would be wise to invest in key person insurance.

9. Regulatory Risks

Form-filling may not be a business owner’s favorite task. However, if a business fails to meet its legal obligations, it could lead to hefty fines and penalties. In some cases, failure to abide by statutory regulations can lead to criminal prosecution. There are many different federal, state, and taxation regulations that small businesses must follow, and the rules often change. The best way to avoid regulatory risk is to hire an accountant and a business lawyer and listen to these professionals’ advice.

10. Damage to Business Reputation

The reputation of a business is an asset that needs protection. In the age of social media, rumors can spread fast and can be extremely damaging to a business. Your business brand also needs protection to ensure that other organizations or individuals do not misuse or misrepresent it. It would be best to counter threats to your business reputation as soon as they become apparent. So, you need to monitor what is being said about your brand. The easiest way to track mentions of your brand is to use brand monitoring software. Larger businesses may wish to employ the services of a brand reputation management company for this purpose.


Risks like the above cannot be eliminated in business. However, potential business risks can be identified by carrying out a regular risk assessment, and, once identified, those risks can at least be planned for, managed, and mitigated. By taking the appropriate precautions, small businesses can minimize their risk exposure, and having adequate business insurance will provide a safety net should any of the above events occur.

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