We've all heard the old 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, there are several small business risks that can and should be mitigated with a robust risk management strategy that will give you a safety net and let you bounce back when things don't work out as perfectly as you may have hoped.
No matter how carefully you run your business, mistakes can happen. Or, maybe you run into an unexpected event that results in business losses that you haven’t accounted for. That's why managing small business risks includes having the right small business insurance in place to address the perils you're most likely to encounter while operating your unique commercial enterprise. Our team at Morison Insurance has put together this list of small business risks to help small business owners identify potential small business threats to their operations and how to mitigate them with the right insurance plan in place.
There's no doubt that liability is one of the most serious and common risks that small business owners face in today's commercial world. Many business owners assume the risk of being sued is diminishingly small to the point of being a non-concern, especially if they take the basic precautions like clearing ice off the walkway and ensuring that they meet all their contractual obligations, but that's just not the case. We live in an increasingly litigious society, with third parties coming up with ways to claim victimhood in the light of seemingly minor incidents. Small business owners can end up bearing the brunt of that litigiousness because, unlike major corporations, they don't have in-house legal teams or lawyers on retainer to focus on squashing legal challenges before they ever get to court.
Keep in mind that you don't have to actually 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 associated costs that come along with that. If you are then found liable by the court, you could have a major settlement to cope with. Those costs can easily exceed a million dollars and continue to climb. That's why it's absolutely crucial to manage your small business risk with the right liability insurance 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 liability risks in small businesses, which means there are many different types of commercial liability insurance, including:
The types of liability coverage you need will depend on the type of small business risks you face, based on factors like the type of business, the services or products offered, and your operational methods.
Nobody is perfect, and to make mistakes is to be human. But making mistakes is a serious small business threat, as in the business world, even minor mistakes have the potential to be critical for your small business operations.
For example, you could leave your work laptop unattended and unlocked, potentially exposing customer information; someone could leave a door unlocked, leading to the left of business products or tools; or you could accidentally provide the wrong advice to your client. Not only do these types of scenarios open you up for liability suits—which we touched on above—they can impact your company’s reputation, complicate operations or productivity, cause financial implications, and threaten your business’ survival.
To limit this small business risk, business owners should consider creating clear, standardized procedures for employees to follow, investing in employee training to ensure everyone is aware of procedures and knows their duties, implementing thorough process checks to eliminate the chances of mistakes or non-compliance causing issues, conducting regular risk assessments to identify operational risks or strategic risks, and using technology to help bridge any gaps that may result in human error.
Additionally, speak to your Morison Insurance broker about ways to minimize human error risks in small businesses, as we can provide expert advice to help you reduce insurance risks to your business and better protect your operations.
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 in the case of a theft, damage, or other loss.
There's no way to avoid the 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, making this small business risk a very bad one to underestimate.
Commercial property insurance will give you financial protection against paying out of pocket following a destructive event and gives you the opportunity to recover from a disaster that could otherwise spell the end of your business and/or drive you into bankruptcy. 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. Be sure to speak to your Morison insurance broker about the types of small business threats associated with the area your business space is located in, as they can provide expert advice on the type of coverage or additions you will need for your policy.
Whether it’s a cash register, company computer, or heavy machinery, modern businesses will likely have some combination of tools and equipment that are essential to the daily or ongoing operations of your business. The loss of these items poses a significant large and small business risk. However, while a large-scale company may have the financial capital to quickly replace these things, smaller-scale businesses may not, especially if the cost of repair or replacements reaches tens of thousands of dollars.
There are coverage options to help reduce this risk in small businesses. Tools and equipment insurance provides compensation for accidental damage and cases of theft, while equipment breakdown insurance helps cover the costs of repairing or replacing expensive machinery. You can also get specialized coverage for computer systems or HVAC systems as well to help mitigate any small business threats.
Keep in mind, however, that these insurance coverages do not cover instances such as regular wear and tear or intentional damage by the insured party. To further reduce this small business risk, be sure to implement recommended tips to prevent the loss or theft of tools, materials, or equipment from your business.
In today’s modern world, pretty much 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 they reason that their larger counterparts represent much more lucrative targets, and therefore criminals won't bother with the little guys.
While it's true that 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 and cybersecurity 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 big company's security. This makes it crucial to take this small business risk seriously and for small businesses to implement measures to try and prevent or limit damage from cyber events.
There are several important cyber security tips that you should follow in dealing with cyber risks as part of a proper risk management process, but it's also important to plan what you'll do in the aftermath of a cyber attack. Cyber liability insurance is a protective measure that offers financial assistance to deal with the expenses that come along with cyber attacks, such as ransom payments to recover information or intellectual property and the cost of notifying clients that their privacy has been breached.
Remember, in the event your business is a victim of a cyber attack, there are certain rules and regulations you would need to follow in your response to this small business threat. Failure to do so can open you up to liability claims for negligence, especially if there is a risk that client account information was exposed during the cyber event. Make sure you understand your responsibilities in these events to prevent further small business risks such as claims of negligence.
Suppose you suffer major property damage or theft that leaves you unable to run your business until restoration or replacement takes place. 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 and cash flow you get from having your business up and running, that period of downtime can be extremely harmful to your bottom line and poses a significant small business threat of having to close your doors for good.
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 so your staff is ready and waiting to get back to work as soon as possible. In short, it helps cover any ongoing expenses you may experience as a result of unexpected business downtime or interruption.
Keep in mind that having business interruption coverage isn’t comprehensive coverage for any number of property risks in small businesses. For example, it doesn’t cover the cost of repairs or replacing damaged equipment. It is more meant to help prevent your business from going under should you be unable to operate as normal in the face of an insured event. So make sure to speak to your professional broker about how you can lower other small business risks with proper insurance coverage.
What takes years to build can be easily destroyed in a single day— you’ve probably heard this saying in multiple different ways by many sources, but what it boils down to is that whether it’s a physical object such as a bridge or an intangible thing like trust, it is a lot easier to destroy something then it is to build it. And this holds especially true for reputation risks in small businesses.
Reputational risk comes from a number of wide-ranging factors, including social media presence, failure to complete contractual obligations, and even potential product recalls. Once a reputational crisis emerges, it's incredibly difficult to turn the clock back and salvage your company's reputation in the eyes of the public. Unlike large businesses, which may have a dedicated PR team to manage these risks, small business owners are often dealing with these threats on their own.
Certain types of reputation insurance can actually help to make this a lot 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 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 to regulatory obligations and beyond, there are numerous situations in which business owners find themselves dealing with legal matters—and if they're not handled correctly, those situations represent major 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 difficult to know where to turn when you need some sound legal advice.
Legal expenses insurance is a key 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 legal adviser 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.
Mitigating business risks can be hard, but with the right insurance coverage and the expertise of the professional brokers at Morison Insurance, you can reduce any small business threats, better protect your business, and have peace of mind knowing that insurance experts are on your side.
Give us a call at 1-800-463-8074, or reach out online to get the help you need to reduce small business risks.
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