We've all heard the adage, "Nothing ventured, nothing gained," and that's certainly never more true than when you're starting a small business and working on growing its success. You have to take risks to reap the rewards—but owning a small business can expose you to potential risks you may not have even considered.
While it's sometimes necessary to take a leap of faith, six small business risks can and should be mitigated with a robust risk management strategy that will give you a safety net and may let you bounce back when things don't work as perfectly as you may have hoped. That's why managing small business risks includes having the right business insurance to address the perils you're most likely to encounter while operating your unique commercial enterprise.
There's no doubt that liability is one of the most severe risks that small business owners face in today's commercial world. Many business owners assume the risk of being sued is small, especially if they take basic precautions like clearing ice off the walkway and ensuring that they meet all their contractual obligations, but that's not the case. We live in an increasingly litigious society, and small business owners can bear the brunt of that litigiousness because, unlike major corporations, they don't have in-house legal teams squashing legal challenges before they ever get to court.
Remember that you don't have to do anything wrong or be liable for causing bodily injury or damage to have legal action brought against you. If someone alleges that you are liable, you're forced to defend yourself in court and handle all the costs that come along with that. If you are then found liable by the court, you could have a significant settlement to cope with. Those costs can easily exceed a million dollars and continue to climb. That's why it's crucial to manage liability risk with the right liability insurance policy so you can get the insurance compensation you need to deal with those financial burdens, keep your business running smoothly, and ensure long-term success. There are many different types of business liabilities, which means there are many different types of commercial liability insurance, including:
The types of liability coverage you need depend on the small business risks you face, based on factors like the type of business, the services or products offered, and your operational methods.
Regardless of what type of small business you run and just how small it is, you have to have somewhere to do the actual work and equipment to do it with—even if that "somewhere" is your very own home and the equipment is a simple laptop. That being said, the bigger your physical commercial location and the more stock, inventory or specialized equipment you require, the more you have to lose.
There's no way to avoid the small business risk of property damage, destruction or theft simply by being careful. No matter how cautious you are and how well-maintained your property and commercial contents are, there's always the possibility of something completely uncontrollable, like a natural disaster or a fire that starts in a neighbouring building and spreads to your commercial property. Anyone who has ever had to deal with the cost of water damage restoration or fire restoration, not to mention replacement of damaged items, will tell you the costs of property losses can quickly get out of control. Commercial property insurance gives you financial protection against paying out of pocket following a destructive event. It allows you to recover from a disaster that could otherwise spell the end of your business. The types of property coverage and the coverage limits you need will vary based on considerations such as the location of your business—if you happen to be in a flood-prone area, for example, near a river or lake that has burst its banks in the past, it makes plenty of sense to invest in overland flood coverage.
In the modern world, every business uses the internet for something, whether it's online retail, accepting digital payments, storing sensitive client information or some other purpose that requires the convenience and scope of working online. As a result, there are numerous cyber criminals out there looking to gain access to information that they can exploit or ransom for money. However, many business owners mistakenly believe that cyber-attacks are not a significant small business risk because their larger counterparts represent much more lucrative targets and, therefore, criminals won't bother with the little guys.
While larger companies can potentially be very lucrative for cybercriminals, the problem is that those companies take strict measures to negate their vulnerability, such as custom firewalls, information security training, in-house cyber security teams, and much more. Small businesses, on the other hand, often don't have much more than the most basic cyber security measures in place, so while the payout is a lot smaller, the required effort is also much less, and that means attacking multiple small businesses is more lucrative for criminals than spending a lot of time trying to get past one giant company's security. There are several crucial cyber security tips that you should follow in dealing with cyber risks as part of a proper risk management process. Still, it's also essential to plan what you'll do after a cyber attack. Commercial cyber insurance is a protective measure that offers financial assistance to deal with the expenses of cyber attacks, such as ransom payments to recover information or intellectual property and the cost of notifying clients that their privacy has been breached.
Suppose you suffer major property damage or theft that leaves you unable to run your business until restoration or replacement occurs. In that case, you don't just have to worry about the cost of the repair work and replacing lost items—you also have to worry about revenue losses from your business being shut down while that recovery work is underway. If you rely on the daily revenue you get from having your business up and running, that period of downtime can be extremely harmful to your bottom line.
That's where business interruption insurance comes in. Business interruption insurance helps you resolve this particular small business risk by prompting your insurance company to offer you financial support to overcome the expenses of business interruption. That could include the cost of renting a temporary commercial space, paying rent on your damaged location while restoration is underway, and keeping up with employee payroll obligations. Hence, your staff is ready to return to work immediately.
Reputational risk comes from several factors, including social media presence, failure to complete contractual obligations, and potential product recalls. Once a reputational crisis emerges, it isn't easy to turn the clock back and salvage your company's reputation in the eyes of the public. Certain types of reputation insurance can make this much easier by giving you access to professional reputation management strategies, crisis consultancy, profit protection and more. If you suspect that reputational damage may be one of the small business risks your company is facing, it's a good idea to speak with your insurance broker about what they recommend to mitigate the common risk before it occurs so you can sleep soundly at night, knowing you have all the possible protection in place to keep your business thriving.
From signing contracts to employee disputes and beyond, there are numerous situations in which business owners deal with legal matters—and if they're not handled correctly, those situations represent significant small business risks. As a small business owner, you probably don't have an in-house legal team or even an attorney on retainer, so it can be challenging to know where to turn when you need sound legal advice.
Legal expenses insurance is a critical component of a comprehensive risk management plan because it gives you, among other benefits, access to legal services such as an advice hotline that you can call anytime to speak with a qualified attorney and get some direction on a wide range of legal matters. In some cases, you can also get services such as legal document review or even contract drafting. You don't have to file an insurance claim to access those services, which means you're free to use them whenever you need to without worrying about making a mark on your insurance claims history.
This content is written by our Morison Insurance team. All information posted is merely for educational and informational purposes. It is not intended as a substitute for professional advice. Should you decide to act upon any information in this article, you do so at your own risk. While the information on this website has been verified to the best of our abilities, we cannot guarantee that there are no mistakes or errors.