TOP 9 THREATS TO SMALL BUSINESSES
Optimism is the energy that propels the entrepreneurial spirit, so it isn’t shocking that most small business proprietors think of themselves as optimists. Too much optimism, however, can bring a small business owner trouble. A business plan produced exclusively on the “best-case scenario” is like a house of cards. One puff of wind—or fire or lawsuit—and the whole enterprise can come crashing down. That’s why wise business owners season their natural optimism with a healthy amount of reality. In other words, they learn to handle risk.
The first stage in implementing a comprehensive risk management program is determining probable risks. To assist you in getting started, we have supplied a checklist of the top 9 threats to small business owners. As you read through the list, assess the unique risks facing your company and ask yourself whether those risks are being handled effectively.
1. Safeguarding Your Property
Property is often a small business owner’s most significant investment. Therefore, for the long-term protection of your small business, you must assess possible dangers to your property and design a plan to handle those dangers. Start by taking a comprehensive inventory of your assets to determine how a loss might impact your business and how much protection you need. Property coverage can come in many shapes to suit your distinct requirements, but a standard policy will furnish the replacement cost value for your building and the actual cash value for your company property.
You have plenty weighing on your budget already, but don’t make the error of preparing for the “best-case scenario” when it comes to your property insurance. Leaving your small business underinsured is a gamble too significant to take.
The U.S. Department of Labor estimates that more than 40% of businesses never reopen after a fire or flood catastrophe. Is your business equipped to weather the storm if a catastrophe strikes? What would you do if a fire forces your building to be temporarily unusable? Ideally, you would move to a temporary site while your permanent place of business is restored. However traditional property insurance does not cover this move or the loss of income while the permanent business site is being repaired.
Ill-prepared businesses are often forced to shut down operations during restoration, which can do irreparable harm to their brand and leave workers without work for an extended duration of time. Entertain business interruption coverage to your property insurance policy to mitigate this threat. This priceless, though often neglected, coverage protects your business by covering operating costs and lost income while the permanent business location is being fixed. In addition, this will allow you to preserve payroll and, if needed, reallocate existing workers to help with the cleanup effort.
3. Liability Losses
No matter how well you prepare, operating a small business can be fraught with pitfalls—the only way to dodge liability entirely is to shutter your business. Instead, savvy business owners do the next best thing: cover their assets by maintaining adequate commercial general liability (CGL) insurance coverage.
CGL policies supply coverage for claims of bodily injury or other physical injuries, personal injury (e.g., libel or slander), advertising injury, and property damage resulting from your products, premises, or operations. In addition, a CGL policy with sufficient coverage limits allows you to continue regular operations while dealing with real or fraudulent negligence or wrongdoing claims and provides coverage for the expenditure of defending and settling claims.
4. Key Person Losses
Small businesses are built around the skills and expertise of a few people. However, imagine an employee critical to the functioning of your business leaves suddenly due to death or injury. Would day-to-day functions continue as normal, or would chaos and uncertainty follow? Would you be able to sustain your current level of performance and current earnings stream? How would you protect for the employee’s monetary loss or pay for a temporary substitute during their recuperation?
Key person insurance can aid you in answering these questions with confidence. This coverage is created to deliver financial stability in a period of stress and uncertainty, letting you keep your firm moving onward without missing a beat.
5. Injuries to Employees
Small business owners, particularly those with less than ten employees, frequently struggle with comprehending their employee health and safety responsibilities. Like their larger peers, small businesses have the obligation to repay workers who are hurt or become sick due to their employment. Unfortunately, many companies do not recognize the total impact workplace accidents have on their organization. Beyond initial treatment expenses and lost production time, on-the-job injuries affect insurance costs. Employee injuries can be a huge threat to small business.
Thankfully, by managing exposures and fostering safety, it is possible to contain workers’ compensation premiums. Maintaining the proper pre-and post-accident systems can drastically decrease the severity of a workers’ compensation claim. In addition, enforcing a thorough safety program can reduce the accident rate. Jointly, these two measures can produce immense long-term savings.
6. Managing Electronic Data and Computer Resources
Small businesses frequently lack a proper IT unit or even elementary internet security measures. This makes them vulnerable to crooked cybercriminals trolling for easy prey. With an assessed liability of more than $200 per compromised record—multiplied by hundreds or thousands of client records—the cost of a single data breach incident is a threat to small business and can be devastating.
If your business stores client records electronically, you must have strong protection measures in place. In addition to taking preventive efforts to lessen Internet-based vulnerabilities, specialized technology coverage, such as cyber liability insurance, can help safeguard your business against harm from cyberattacks, data breaches, and other internet-based exposures.
7. Environmental Exposures
Think of a firm with significant environmental exposures. What comes to mind? Most individuals think of big manufacturing, mining, or petroleum businesses. However, these are not the lone industries that risk environmental liability losses.
It is essential to conduct a comprehensive risk examination to define your level of exposure. Keep in mind that because most commercial insurance policies have pollution exclusions, unless you have environmental insurance, you may be uninsured against substantial environmental loss exposures.
8. Employment Practices
You are at risk for a lawsuit from the instant you begin the pre-hiring process until the last goodbyes at the exit interview. Three out of five employers will be sued by a future, current, or former worker while they are in business. Although many cases are unfounded, defending against them is expensive and time-consuming. Your business should take a hard look at whether it can afford to defend itself against charges of wrongful employment practices. Most business owners don’t consider that they will actually be sued and that’s why we have this in the top 9 threats to small business.
If not, an insurance solution called employment practices liability coverage can safeguard your company against wrongful termination, discrimination (e.g., age, sex, race, and disability), or sexual harassment lawsuits.
9. Contracts
When first starting, many new business owners don’t have the time or expertise to evaluate each clause in everything they’re signing adequately. This oversight, however, can create significant problems down the road.
Small businesses become encumbered with additional risks in many circumstances, accepted via risk transfer from savvy suppliers or customers. While it’s alluring to shave expenses by skimping on legal fees, making sure your firm isn’t taking added and unnecessary risk can save you a lot of cash over the long haul.
