Small Business Risks, sme, small business insurance

Every famous successful company worldwide has started as a small business and gradually grown into what it may be today. Starting and running a small business takes a lot, from a business plan to trustworthy employees.

Running a small business, also known as a SME, is challenging and requires a deep understanding of the industry. The company must be able to adapt and be prepared for the worst. Therefore, all companies must understand their risks and have an adequate risk management plan.

Businesses have unique risks; however, there are some common small business risks every company must be aware of. These business risks can result in damages, liability lawsuits, injuries, etc.

Hence, the article will highlight the top 10 small business risks and if there are insurance policies that can help battle the risks. By knowing the top risks, businesses can create a risk management plan to help them succeed.

Identifying And Managing Top 10 Small Business Risks

1. Liability Risks 

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Every company has specific responsibilities to clients or customers when providing a service. Clients and customers trust professionals and businesses to give honest and expert advice and service.

However, there is always a chance that a service or advice may cause harm/ damage to a client or customer. Clients or customers can take action against the business when they believe they have been wronged and deserve compensation due to negligence, miscommunication or inaccurate advice.

Liability claims are small business risks that can ruin a company due to legal costs and reputation damage. Small businesses can purchase professional indemnity insurance to cover professional liability risks. The insurance will cover the expenses related to the liability claims.

Lawsuits could occur to any small business; without protection, it will push them off their target to success and growth.

2. Customer Risks

Ensuring customers are happy and safe while using a product or on business premises is essential for growth and success. However, customers can be a risk, leading to business damage.

Customers can also be known as third parties. A customer will sue a business if a product, business activity or premises is to blame for a third-party injury or property damage. Business should ensure their product and premises are safe for any third party while ensuring their business is satisfying consumers.

However, third-party claim surprises can occur even when trying to be safe. Product and public liability insurance is the best coverage for third-party risks and claims. The policies will help recover by covering legal and compensation costs.

Both policies are essential to a small business that sells products and has customers entering their premises.

3. Cyber Risks

Almost all businesses use the Internet for research, marketing, online sales, tracking and data storage. The necessary online activities come with possible cyber-related small business risks.

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Cyber-attacks are one of the biggest concerns for any business, regardless of size. There are always cyber criminals who are looking to steal data and infiltrate company servers through various cyber-attacks.

Cyber-attacks against small businesses have been on the rise due to a lack of cybersecurity or awareness. High-quality cybersecurity softwares and training can help detect most cyber threats; however, some innovative attacks may still make it through.

Cyber insurance is the ideal policy to cover cyber risks. The insurance will cover cyber experts’ advice, threat removal, data recovery, third-party communication, ransom costs and financial loss. 

It is one of the most important insurance that can save a small business from substantial financial loss.

4. Employee Risks

When a small business grows, more employees are added to the team in various roles. When the first employee joins the company, employers are liable for their safety as they perform their duty.

Employee work injuries are possible in any role and work environment. The work injury could be due to the job (e.g. a construction job) or a surprising slip and fall. Proper gear and safety measures can help avoid the small business risk, but not every time.

Employers are responsible for financially assisting injured or ill employees with medical bills, salaries, and compensation costs. Employee compensation insurance will help cover the costs and assist the employee’s recovery without financial stress. The employee cover is legally mandatory in most countries, including Hong Kong.

5. Management Risks

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Much like employees, management staff is essential to help direct employees and manage funds and duties in the right beneficial direction.

As a small business, the management roles are trusted with various company secrets, and some have access to company funds. Unfortunately, there are instances where malicious managers and directors perform wrongful activities.

These wrongful activities can include employee discrimination, breach of duty or failure to comply with regulations. When an investor or governing body is aware of one of these acts, they can sue the directors, managers and business.

It takes one dishonest manager to sink a hard-working small business ship. Director and officer (D&O) insurance is essential for any small business founder, manager and director. The insurance covers lawsuits and settlement costs related to the lawsuit. 

The insurance will protect the management staff that have been falsely accused or the breach was due to an error.

6. Property Risks 

Business property is precious to a small business. The property can include the rented office or retail store location and the company’s equipment to complete business activities.

Small businesses may take measures to safeguard their property, but unpredictable property damage is always possible. Some damage may result in a significant loss that could be unrecoverable for a growing company. 

Property damage can occur due to fires, floods, natural disasters, vandalism, or theft. These situations may require expensive repairs or replacement before normal business activities can resume.

Property all-risk insurance for small businesses is vital to protect their property and equipment. The insurance will cover the costs of repairing and replacing the damaged property. The insurance can help companies recover without spending thousands out of budget on repairs.

7. Business Interruption Risks

Dealing with property damage is hard enough for a small business, but more small business risks follow it. Long-term repairs mean the company is either in a state of pause or a large part is disturbed.

Business Interruption Risks - food and beverage insurance

Business interruption means the business has almost no income and is still liable to pay rent, salaries and possible loan payments. The financial loss can seriously damage the small business when it reopens.

Business interruption insurance is a necessary extension to property all-risks insurance to cover the cost of income loss. The insurance helps businesses cover income loss and payments. Hence, companies can recover without worrying about significant losses.

8. Supply Chain Risks

Suppliers play a big part in producing the product or providing the service for various businesses. The movement of parts, materials or products can be complicated for a small business due to the costs and logistics.

Suppliers will send the goods from their location to the business location but may not cover cargo protection. Hence, working with suppliers comes with small business risks. Supply chain risks include damage, loss or theft of valuable cargo.

Cargo insurance for small businesses is vital when dealing with cargo. The insurance will protect the value of the supplied cargo. The insurance ensures the small business budget is not affected due to loss or damaged cargo.

9. Financial Risks

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Various financial risks may be out of control, but some can be avoided or reduced with the proper protection.

For instance, many businesses work in the B2B industry, providing products or services in exchange for trade credit. Trade credit means the other company will pay the small business on an agreed date after the product or service.

Small businesses operating this way may fall under the small business risk of non-payment or late payments. Non-payment can seriously disturb a business’s financial status, especially for a small company that depends on each payment to grow in the industry.

Trade credit insurance for small businesses is essential to avoid B2B financial risks. The insurance will reimburse a portion of the financial loss due to non-payment or delayed payments. The cover can help a company move on and use the funds to continue its activities.

10. Environmental Risks

Environmental safety is a serious factor when running a business. All businesses are liable for their waste and effect on the local environment.

Small companies typically won’t be responsible for environmentally damaging fumes or oil spills, but there is always a chance of pollution due to plastic or toxic waste. If the public or government believes a small business is responsible for environmental damage or waste, they may take action against the company. 

The lawsuits, plus the compensation for clean-up, are extremely costly. Environmental liability insurance for small businesses can help with these situations. The insurance will help financially cover the legal case and the clean-up cost. 

It’s among the small business risks that may be rare but could happen to any business that uses plastic or chemicals.

Small business risks may differ for every company, but having the ideal risk management and protection plan is essential.



To Learn More about business insurance and cover small business risks, contact Red Asia Insurance.