Small businesses tend to focus on growth and innovation rather than survival. However, identifying, evaluating and controlling business risk can often be the difference between success and failure.
Most small businesses aren’t equipped to deal with the potential risks they face, however with some effective planning the potential consequences can be managed. The digital insurance broker ‘get indemnity’ considers the top 10 business risks:
Cash flow risk
The total amount of money coming in an and going out will impact on your ability to sustain and grow the company. Cash flow issues are commonly identified as the most significant business risk to small companies. Shortfalls will usually lead to the business taking on debt and if the cashflow is persistently negative will eventually lead to administration.
Business liability risk
Customers, contractors, competitors, employees and creditors are just some of the third parties you may become embroiled with a legal dispute. Your ability to mount a legal defence and ability to pay damages can have a significant impact your financial resources. Small businesses do not always maintain adequate insurance commensurate to the business risks they are exposed from a range of liability claims.
Adhering to legislation and amending business practices to meet your statutory requirements will impact how your business operates. Regulators are increasingly active in pursing small businesses with investigations, fines or penalties when they don’t comply with their legal requirements. The worst offenders maybe required to cease trading or have criminal sanctions brought against the company directors.
Injury or illness risks
The impact of an illness or injury on a small business can have consequences both financially and operationally. If a founder is unable to continue this may have devastating consequences. Whereas, the business may be found culpable of causing bodily injury or illness either to an employee or a member of the public. Without adequate business insurance the cost of compensation can be significant.
How you compete within your marketplace will impact your turnover and margins. The business risk associated with price, product, promotion and distribution of a competitor will have an impact on your ability to compete for customers. Historically, the incumbents always held the upper hand, however we continue to see advancements in technology that allow for disruptive new entrants to achieve overnight success.
Small businesses are at an increased risk of being targeted because their systems tend to have more vulnerabilities and are easier to infiltrate. The impact of a cyber attack or a data breach can have far reaching consequences. Effective cyber security and business insurance can reduce the likelihood of an event and offer support through access to cyber specialists and financial protection.
Property damage risks
Property such as buildings, vehicles, computers, stock, will often form a small business’s largest asset. The potential impact from a fire, flood or theft for example, is a significant business risk. Insuring these are adequately protected in the event of an unforeseen event can often be the difference between a survival or failure. Business interruption insurance can offer added protection from the loss of income from being unable to trade.
Supply chain risks
Supply chain disruptions have significant impact on small businesses and their financial performance. Whereas larger businesses with mature supply chain and risk management capabilities are more resilient. Business risks will occur in supplying a product or service to a customer in terms of cost, quality, time and reputational damage. Over reliance on one or more third-party suppliers will increase your exposure to negative outcome.
Implementing effective policies and procedures for a small business can often seem redundant and time consuming. However, the cost of a trusted employee stealing over a long period, or a cyber crime where you unwittingly authorise a transaction to an imposter
can have severe financial consequences. Added protection available under crime insurance can offer protection against any monetary or property losses.
Small businesses should monitor their reputation because it can evolve to become your most important asset. The growing use of social media and online review sites can make managing your reputation easier. However, without adequate monitoring and ability to effectively respond the speed at which negative publicity may adversely impact your company’s reputation can have serious consequences.
Any insurance broker will recommend that a key component of a risk management strategy needs consider which business risks can be transferred from your balance sheet.
Business insurance can then offer a cost-effective solution to manage potential risks that have a low probability, but the financial consequences are considerate. Business risks you unable to transfer or you decide to retain should be considered in conjunction with a business continuity plan.