5 Common Risks to Small Businesses and How to Avoid Them
Those who are fortunate enough to own their own small businesses enjoy many benefits they wouldn’t have if they remained employed as a worker for someone else or for another company. As an entrepreneur, you get to be your own boss, work in a field or industry you’re passionate about, and utilize full creative freedom to sell whatever product or service you want. You’re also more likely to be satisfied with the hard work you put into running your company, and as a result, the financial rewards you receive will be much sweeter.
But owning a small business comes with its fair share of challenges. Many of these can put your company at great risk. Given that you don’t have the same machinery as a big corporation, you may not immediately have the resources to keep your company stable for the long term. That makes you much more vulnerable to business risk and its various consequences.
Small business owners need to be extra proactive about identifying and mitigating their exposure to risk. Here are five common risks to small businesses and the strategies that you can implement to prevent them from derailing the successes of your small- or medium-sized enterprise (SME) or startup:
1) Financial Risks
Financial risks typically involve uncertainties and challenges in managing your business’s financial resources. They encompass various factors that may impact your company’s economic health and cause difficulty when it comes to covering expenses or dealing with potential financial crises. Poor business banking management, for example, can put your small business at financial risk. Mismanaging your accounts, incurring unnecessary fees, and neglecting to keep a close eye on your business transactions can cause you to lose revenue. If these factors aren’t promptly addressed, they can disrupt your cash flow and make it more challenging for you to meet your financial obligations.
One thing you can do to avoid these oversights is to make use of online business banking solutions like Maya Business Deposit. This fully digital deposit product is designed to make business banking online more manageable, providing you with a hassle-free way to receive and track all your small business banking transactions. Since everything is digitized, you’ll be able to reduce accounting errors and delays—especially those that typically happen due to mistakes in manual processing. As such, you’ll have an easier time maintaining your small business’s cash flow in real time.
Maya Business Deposit also offers free fund transfers via PesoNET and InstaPay and a 2.5% annual deposit interest rate, which is four times more than what average banks in the Philippines offer. A deposit product like this one can help you address your SME business banking needs as well as save and earn additional money.
2) Data Risks
Data risks are associated with the protection and management (or lack thereof) of sensitive business data. They involve threats to the security and integrity of a business’s data, any of which can cause significant disruptions in business operations as well as financial losses reputational damage if left unmitigated. Cybercriminals typically use tools like ransomware to gain unauthorized access to customer data or confidential business information. Nowadays, more of these bad actors have chosen to target small businesses because the latter usually have less robust cybersecurity measures than their larger counterparts.
That being said, it’s in your best interest to invest in cybersecurity solutions to protect your business from these threats. You can utilize solutions like firewalls, antivirus software, or an internet security suite to better safeguard the data of your company and customers. Make sure to update your cybersecurity software regularly to patch vulnerabilities and boost your levels of data protection. You should also consider training your employees in cybercrime detection and prevention so that they can act as a first line of defense against data risks.
3) In-Store Security Risks
In-store security risks relate to potential issues within a business’s physical premises. These risks can severely affect your company’s finances as well as employee and customer safety.
Employee theft is one common issue that small businesses with brick-and-mortar operations face. Employees who steal your products or money from the register or engage in fraudulent activities can cause grave financial losses, significant damage to the business's reputation, and a negative impact on the work environment.
To avoid risks like these, conduct thorough background checks when hiring employees to man your business. You’ll also want to establish a well-written workplace theft policy so that you can clearly explain the company’s approach and measures for preventing theft. Stating that your business takes employee theft seriously, and that there are consequences set in place should theft happen, will discourage staff from stealing from you.
Another in-store security risk that a small business may encounter is robbery. Robberies can endanger employees and customers as well as result in property damage, and news of robbery incidents can turn future customers off from visiting the store. Deter any would-be robbers by investing in alarms and surveillance systems and hiring competent security guards to watch over your business premises.
4) Liability Risks
Liability risks involve potential legal and financial consequences that may arise from business operations or customer product use. Depending on what type of business you run, you’ll need to implement the right solutions to protect your company from product or professional liability claims. Failing to do so may mean getting slapped with legal expenses and settlements.
Any business that sells and manufactures products has a higher risk of product liability. If this is the case for your business, you should put a premium on product safety and implement stringent quality control and testing procedures. This serves the twofold task of shielding your business reputation from liability risks and ensuring that your products are profitable because they meet your customers’ and regulators’ standards.
Conversely, if you own a service-based business, you’ll want to be proactive about protecting your company from professional liabilities. To prepare for this, make it a point to create contracts that clearly define and document the scope of services your company provides. This will help you manage your clients’ expectations and ensure that everyone’s on the same page about what you offer.
In addition, consider investing in professional liability insurance. This is an effective measure for protecting your business against legal claims.
5) Environmental Disaster Risks
Environmental disaster risks relate to potential threats posed by natural disasters such as typhoons, floods, and fires. If a business isn’t prepared for a disaster that can hit at any time, they may have to deal with devastating property damage. The ensuing business interruptions from a natural disaster can also lead to a significant loss in revenue and make it harder for a company to recover even when conditions have improved.
To help your small business bounce back faster from unforeseen losses due to natural disasters, secure comprehensive commercial property insurance that offers coverage from all kinds of environmental risks (e.g. fires, lightning, floods, storms, and/or earthquakes). This ensures that you’ll receive timely financial assistance, which in turn can quickly get your small business back on its feet.
Again, unlike a large corporation, a small business like yours may not have the budget nor the initial know-how to sufficiently protect itself from various types of risks. However, this doesn’t mean that you should leave your company vulnerable to them. On the contrary—take extra initiative to familiarize yourself with the risks that come with doing business on this scale, and find the most innovative and effective solutions to counter them.
But owning a small business comes with its fair share of challenges. Many of these can put your company at great risk. Given that you don’t have the same machinery as a big corporation, you may not immediately have the resources to keep your company stable for the long term. That makes you much more vulnerable to business risk and its various consequences.
Small business owners need to be extra proactive about identifying and mitigating their exposure to risk. Here are five common risks to small businesses and the strategies that you can implement to prevent them from derailing the successes of your small- or medium-sized enterprise (SME) or startup:
1) Financial Risks
Financial risks typically involve uncertainties and challenges in managing your business’s financial resources. They encompass various factors that may impact your company’s economic health and cause difficulty when it comes to covering expenses or dealing with potential financial crises. Poor business banking management, for example, can put your small business at financial risk. Mismanaging your accounts, incurring unnecessary fees, and neglecting to keep a close eye on your business transactions can cause you to lose revenue. If these factors aren’t promptly addressed, they can disrupt your cash flow and make it more challenging for you to meet your financial obligations.
One thing you can do to avoid these oversights is to make use of online business banking solutions like Maya Business Deposit. This fully digital deposit product is designed to make business banking online more manageable, providing you with a hassle-free way to receive and track all your small business banking transactions. Since everything is digitized, you’ll be able to reduce accounting errors and delays—especially those that typically happen due to mistakes in manual processing. As such, you’ll have an easier time maintaining your small business’s cash flow in real time.
Maya Business Deposit also offers free fund transfers via PesoNET and InstaPay and a 2.5% annual deposit interest rate, which is four times more than what average banks in the Philippines offer. A deposit product like this one can help you address your SME business banking needs as well as save and earn additional money.
2) Data Risks
Data risks are associated with the protection and management (or lack thereof) of sensitive business data. They involve threats to the security and integrity of a business’s data, any of which can cause significant disruptions in business operations as well as financial losses reputational damage if left unmitigated. Cybercriminals typically use tools like ransomware to gain unauthorized access to customer data or confidential business information. Nowadays, more of these bad actors have chosen to target small businesses because the latter usually have less robust cybersecurity measures than their larger counterparts.
That being said, it’s in your best interest to invest in cybersecurity solutions to protect your business from these threats. You can utilize solutions like firewalls, antivirus software, or an internet security suite to better safeguard the data of your company and customers. Make sure to update your cybersecurity software regularly to patch vulnerabilities and boost your levels of data protection. You should also consider training your employees in cybercrime detection and prevention so that they can act as a first line of defense against data risks.
3) In-Store Security Risks
In-store security risks relate to potential issues within a business’s physical premises. These risks can severely affect your company’s finances as well as employee and customer safety.
Employee theft is one common issue that small businesses with brick-and-mortar operations face. Employees who steal your products or money from the register or engage in fraudulent activities can cause grave financial losses, significant damage to the business's reputation, and a negative impact on the work environment.
To avoid risks like these, conduct thorough background checks when hiring employees to man your business. You’ll also want to establish a well-written workplace theft policy so that you can clearly explain the company’s approach and measures for preventing theft. Stating that your business takes employee theft seriously, and that there are consequences set in place should theft happen, will discourage staff from stealing from you.
Another in-store security risk that a small business may encounter is robbery. Robberies can endanger employees and customers as well as result in property damage, and news of robbery incidents can turn future customers off from visiting the store. Deter any would-be robbers by investing in alarms and surveillance systems and hiring competent security guards to watch over your business premises.
4) Liability Risks
Liability risks involve potential legal and financial consequences that may arise from business operations or customer product use. Depending on what type of business you run, you’ll need to implement the right solutions to protect your company from product or professional liability claims. Failing to do so may mean getting slapped with legal expenses and settlements.
Any business that sells and manufactures products has a higher risk of product liability. If this is the case for your business, you should put a premium on product safety and implement stringent quality control and testing procedures. This serves the twofold task of shielding your business reputation from liability risks and ensuring that your products are profitable because they meet your customers’ and regulators’ standards.
Conversely, if you own a service-based business, you’ll want to be proactive about protecting your company from professional liabilities. To prepare for this, make it a point to create contracts that clearly define and document the scope of services your company provides. This will help you manage your clients’ expectations and ensure that everyone’s on the same page about what you offer.
In addition, consider investing in professional liability insurance. This is an effective measure for protecting your business against legal claims.
5) Environmental Disaster Risks
Environmental disaster risks relate to potential threats posed by natural disasters such as typhoons, floods, and fires. If a business isn’t prepared for a disaster that can hit at any time, they may have to deal with devastating property damage. The ensuing business interruptions from a natural disaster can also lead to a significant loss in revenue and make it harder for a company to recover even when conditions have improved.
To help your small business bounce back faster from unforeseen losses due to natural disasters, secure comprehensive commercial property insurance that offers coverage from all kinds of environmental risks (e.g. fires, lightning, floods, storms, and/or earthquakes). This ensures that you’ll receive timely financial assistance, which in turn can quickly get your small business back on its feet.
Again, unlike a large corporation, a small business like yours may not have the budget nor the initial know-how to sufficiently protect itself from various types of risks. However, this doesn’t mean that you should leave your company vulnerable to them. On the contrary—take extra initiative to familiarize yourself with the risks that come with doing business on this scale, and find the most innovative and effective solutions to counter them.
