Entrepreneurship is indeed a rewarding path. But it isn’t without its risks.
Launching a business and being your own boss is the ambition of many. While some do possess the drive and the discipline to make it happen, so many small businesses fail to make it past the first five years.
It’s a misguided perception that only large businesses need to carry out risk assessments and invest in hefty insurance coverage. Small businesses are at an exceptionally high risk of failure - and that’s not down to workers’ or employer’s inadequacies, but rather, down to small oversights when it comes to preventive behaviours. Preparing for and protecting your business from inevitable threats and risks should be a priority.
Here we look at some of the biggest threats to small businesses and what you can do to avoid them.
1. Cyber breaches
Small businesses often lack even the most rudimentary cybersecurity measures, with almost half of UK businesses suffering a data breach. In today’s digitally driven world, your assets are no longer limited to physical form, so a data breach has the potential to destroy or compromise vital components of your business.
Small businesses are at an increased risk of being targeted by cybercriminals because their systems tend to have more vulnerabilities and are therefore much easier to infiltrate.
But if your business is in no way related to IT you may feel you don’t have the internal resources to manage such risks. In this case, it’s highly important to consider outsourcing this resource to - a worthwhile investment that will protect your business from one of the most disastrous threats.
Cyber breaches can come in the form of fraudulent emails, file encryption and system infiltration, but the financial impact can be devastating. The average financial impact of a cyber breach is around £3,100 to a business. And the influx is partly down to the fact that businesses consider themselves “offline” or too small a risk for cybersecurity to be a worthwhile investment. We’ve written about cybersecurity essentials for small businesses before, so definitely bookmark this for a read later.
2. Property losses
It is essential you invest in commercial property insurance to cover the expense of a temporary move or loss or damage to your largest asset - your property. Adequate insurance coverage can save you from loss of business, time, and money. In the beginning, however, it can be tempting to skim over such costs, opting for the cheapest policy.
Similarly, if you are operating from a home office, be sure to check your insurance covers damage or loss to the business, as generic home insurance will not suffice.
3. Employee injury or ill health
Just as their larger counterparts are expected to indemnify workers who become ill or injured during the course of employment, so are smaller businesses. Within the first few years of business, a whirlwind of new responsibilities can steal your attention from that of employee health, albeit unintentionally. But the impact of employee illness or injury on the business as a whole can induce long-term consequences both financially and operationally. Prolonged absenteeism from one or two workers in a small business can be devastating, whether due to mental illness or physical injury or illness. Stress-related mental health issues are rife within the modern workplace, so it’s essential that businesses have the correct procedures in place to minimise these where possible.
Additionally, having proper safety procedures in place, prioritising employee health and well-being. This could be in the form of pre and post-accident procedures, or even offering flexible working options. It’s surprising what a tremendous impact these types of procedures can have on mitigating risks to employees health. Plus, a comprehensive safety program will reduce the risk of accidents altogether.
4. Business interruption
In the event of a flood, fire, or bad weather, are you confident business can continue as usual? If your environment is destroyed, business continuity becomes a priority. Having back up measures in place is crucial, especially when customers and employees are depending on you. It’s equally important that you maintain a healthy cash flow in order to stay afloat. Interruptions or unplanned breaks could disturb the flow of your funds and damage reputation, so it’s crucial to have back up plans in place should the worst occur.
It’s also worth noting that most commercial insurance policies contain pollution exclusions, so unless you carry environmental insurance you could be uninsured against significant environmental exposures.
5. Loss of key individuals
Ever heard the theory that two of your employees are responsible for 80% of the work? Small businesses with 10 or fewer employees have a tendency to depend on one or two employees to carry out 80% of the work. But what happens when one of those employees leaves? When these individuals leave the business, either for an alternative path, change in circumstances, maternity leave, or simply a new challenge, it cannot be at the expense of your business's sustainability. You can’t always ensure employee loyalty, so depending on one person for a multitude of operations within the company is a risky move could be to the detriment of your future.
Instead, spread the responsibility and share it with newer or younger employees. Giving apprenticeships and junior staff increased responsibility is said to empower them and improve job satisfaction.
We hope this post has highlighted some of the key areas to protect as you begin or continue your business. If you require guidance or assistance in any of these, or in any other areas of your business we would be happy to offer support. Do get in touch.