Top 5 Risks Business Owners Face and How to Protect Your Bottom Line
Posted August 21, 2023 in Business Risks
Owning a business always comes with risks regarding their ability to operate and profit. Unfortunately, there’s no perfect system to ensure every risk is avoided. But it’s a good idea to be aware of the most common risks that business owners face to protect yourself as best as possible.
Below we will discuss the top 5 risks business owners face and some tips on how to avoid them.
For more information on how Gallant Risk & Insurance Services, Inc., can help you protect your business from these common risks, call (951) 368-0700.
1. Financial Risks
Risks that can impede cash flow and limit a business’s ability to meet debt-related obligations or pay interest loans are all considered financial risks.
Virtually any business that has financing may encounter various financial risks, but businesses with higher levels of debt are more susceptible. Other types of financial risks include credit risk, currency risk, and liquidity risk.
It’s always a good idea to practice maintaining a healthy budget with minimized overhead to protect against uncontrollable risks.
2. Compliance and Legal Risks
Business owners may face lawsuits if their business operations neglect government laws or policies — whether these actions were conscious or not. Breaking contractual obligations or shirking environmental policies are examples of actions that may bring compliance and legal risk to a business’s operations.
If your business deals with any type of pollution, hazardous waste removal or manufacturing, you may unknowingly encounter legal risk if proper procedures are not followed or accidents occur.
One way to protect your business from compliance and legal risk in this case is to seek environmental liability coverage from Gallant Risk. Accidents happen, so it’s best to ensure the safety of your business and its operations.
3. Cybersecurity Risks
Online use is almost ubiquitous with modern business. Virtually every business operates online through sales, e-payments, customer services and storing sensitive data. These businesses are increasingly susceptible to hacking, data leaks and payment fraud.
Although protection against cybersecurity risks seems futile, there are a few ways to protect your business and its data.
There’s a common misconception that today, everyone is internet and tech savvy. That’s not always the case. It may be worth it to invest in employee informational training on how to safely interact with email to avoid phishing and other scams. Additionally, software security is a must in today’s tech-centric world.
For the highest level of risk security, consider investing in executive, employment and financial liability insurance. This is a sort of catch-all policy that is good for small business and large corporations, including cybersecurity risks.
4. Operational Risks
Operational risks are just what they sound like: day-to-day operations that may result in a decrease in profits. This can be employee actions such as undercharging customers, lost or damaged equipment or product or even natural disasters.
This general term can be broken down into many different definitions depending on the type of business you own, and the risks may be internal (employee actions) or external (natural disaster).
Minimizing operational risk is unique to each type of business, so it’s in your best interest to assess the unique challenges your business might face. For example, if you own a restaurant it may be a good idea to ensure proper training of new employees to avoid excessive order comps.
- Carrier legal liability insurance can help mitigate risk involved with businesses that deal with transporting goods or products
- Builders risk/contractors construction liability insurance protects business that may need construction or repair, in the aftermath of a natural disaster for example
- Property insurance covers accidents or events that disrupt income
- Workers compensation with employer’s liability insurance protects you and your employees from injury during daily operations
5. Reputational Risks
Any claims against your or your business’s reputation that threatens your ability to profit is considered a reputational risk. Negative customer reviews, social media or news articles that detract from public perception, or safety recalls can all negatively impact your business.
Image is everything; it is important to be diligent about maintaining good business practices, community reputation, and positive customer interactions. One of the most important aspects of minimizing reputational risk is to uphold excellent customer service protocol at every level. One negative Yelp review may marr your business’s reputation and cost you money.
General liability insurance is a must-have for businesses, but it can also help mitigate the cost when reputational risk arises as it covers legal fees if your company gets sued.
Professional liability and malpractice insurance is essential for those who provide services such as doctors, accountants, attorneys, advisors, counselors, and more. Any time a person claims that services rendered were negligent, insufficient or underperforming, malpractice insurance can help protect you and your business.