Written by: Peter Minkoff
Small businesses are susceptible to a wide variety of risks and potential crises that can permanently close their doors.
The COVID-19 pandemic, from which the entire world is still reeling, showed that there are some crises that we can’t predict, let alone control or prepare for. Approximately 34% of small businesses in the US are closed compared to January 2020.
But, there are some smaller and more common risks that can, if not properly prepared for, snowball into a full-blown crisis and result in financial loss or even closure.
Luckily, unlike that was the case with the pandemic, small businesses can make a strategy and avoid certain mitigation issues.
Here are some of the ways to prevent the most common without having to worry about financial consequences.
1. Get a Business Insurance Policy
This one is a no-brainer and is one of the most obvious methods of making sure your small business is protected against various risks.
It’s best to obtain a comprehensive insurance policy that will cover all the areas of your business and reduce your odds of suffering a huge blow that would put your small business into dire straits.
In other words, insure your inventory, equipment, company property, vehicles, and everything else that could be damaged or lost in any kind of worst-case scenario. The effects of fires, floods, earthquakes, or burglaries could be mitigated, thus allowing your company to survive and stay in business.
Apart from that, it’s of critical importance to secure the funds for compensating your employees as the damages you’d have to pay could be astronomical. That’s why Employee Compensation Insurance will cover your liability should a member of your staff suffers injury or falls ill while working for your small business.
2. Stick to Your Budget
Poor cash flow management is the reason why 82% of small businesses fail.
That’s why it’s crucial to carefully plan all your expenses and make sure you stick to your budget. Keeping track of all your expenses is another way to notice a potential issue before it turns into a financial crisis.
For example, late or unpaid invoices can disrupt your cash flow and seriously jeopardize your company, so staying on top of this part of your business is something that’s absolutely necessary. It’s a good idea to set up an invoicing system that will notify and remind your clients that it’s time to foot the bill for your goods and services. In case they fail to make payment even after this, don’t hesitate to pick up the phone and reach out to debtors that avoid your emails in person.
Long-term commitments are another trap. While your business still hasn’t taken off, you should avoid leases and mortgages because expenses only add up and burden your budget. Instead of purchasing a new car for your business and committing yourself to regular lease payments, it’s a much better and safer option to use your private car and opt for mileage reimbursement.
This way, you’ll reduce regular business expenses and initial risks stemming from the debts and upfront investments.
3. Improve Your Company’s Security Posture
Every business collects and stores a substantial amount of sensitive customer information for marketing and other purposes. Besides that, the odds are that your own data is either in the cloud or stored on physical devices such as computers, which means that it’s potentially at risk of being stolen by opportunistic cybercriminals.
Given that there’s a hacker attack every 39 seconds, it’s obvious that you should protect and safeguard your customers’ and company’s data in order to prevent breaches. In addition to that, if your business accepts online payments and processes credit card transactions, it’s more susceptible to cyber threats.
Some of the measures you should take include:
- Creating strong passwords, changing them frequently, and using a different one for every account will offer an additional layer of protection
- Training your employees about security measures is crucial
- Implementing email archiving solutions that will protect your customers’ personal information, store and archive it in compliance with required regulations and industry laws, and manage them effectively
- Backing up your data with data archiving. Even if you keep everything in the cloud, don’t rely solely on this infrastructure, although it’s by far one of the safest tactics. Data loss happens even to the best providers. For example, in 2014, Dropbox suffered a sync glitch, after which a number of its subscribers reported data loss. What’s even worse is that they couldn’t retrieve these lost files.
These tips will help you improve your company’s security posture, at least to a certain extent.
4. Reduce Your Reputational Risk
Reputation is one of your biggest and most important business assets, so it’s essential to manage and protect it.
You can’t afford to leave this aspect of your business unattended and fail to take notice that a reputational crisis is looming on the horizon.
The first thing you should do is participate in and keep an eye on online conversations about your company. This means that you should always know what your customers and competitors talk about your brand on social media and across the internet.
Using social listening tools can help you with this, provide you with actionable insights, and allow you to identify what you should to improve your service and customer satisfaction.
Besides that, you should also have a plan for managing reputational crises and incidents so that you and your employees know exactly what steps to take in case an issue occurs.
Every small business is bound to experience its fair share of risks and problems, some of which will be completely out of your control. But being prepared for the aftermath is what will make a difference between whether your company will stay afloat or go under.