Top 9 Risks Facing Small Businesses

By on June 4, 2013

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Simple strategies small business owners can use to identify and effectively manage common risks to a businesses’ success.

The first step to managing risk is to identify potential threats which could trigger a huge financial loss. Every business will have other unique exposures, however, these are some of the risks facing most small businesses.

9 Key Exposures Every Small Businesses Can Manage

1. Business Interruption

What would happen if a fire or storm caused your facility to be temporarily unusable and forced you to shut down operations? Small businesses often rely on daily business transactions to turn a profit. To mitigate the loss of revenues, payroll, temporary rent expenses while your business facilities are being repaired, Business Interruption insurance can be added to your commercial property policy. This will allow you to cover the loss of income, maintain payroll and more (varies with each carrier and package).

2. Supply Chain Interruptions

If one or more third-party suppliers which produce certain components used in your products has a business interruption, then you could experience some production interruptions of your own. You may have some contingency plans already in place to mitigate any immediate problems, however, if you do not, supply chain insurance can help mitigate the costs. Such coverage allows you to work confidently with suppliers who face exposures beyond your control.

3. No Legal Adviser

Many new small business owners don’t have the time, money or expertise to evaluate each legal detail of the contracts being signed. Unfortunately, this can lead to legal oversights which can result in huge legal fines. Spend a little to have a legal adviser make sure your business is not accepting additional and unnecessary risk for a small legal fee now.

4. Liability for Injuries and Damage

No matter how well you prepare and set safety standards, the unexpected can happen. Suddenly, a small business can found liable for costly physical injuries, personal injuries (libel or slander), advertising injuries and property damage as a result of products, premises or operations. Never skimp on Commercial General Liability (CGL) coverage!
This insures your business can continue normal operations while managing real or fraudulent claims of negligence or wrongdoing.

5. Loss of a Key Employee

Many small businesses rely on the expertise of a few individuals. What would happen to day-to-day operations if one of these crucial employees were unexpectedly injury or lost? Could you cover the cost for a temporary replacement? If your small business is built on the function of certain employees, then Key Person Insurance can provide you with financial support to cover or replace them so your business can function smoothly.

6. Wrongful Employment Practices

Real or fraudulent, every employer has the potential for incurring lawsuits from potential, current and former employees for wrongful employment practices. Along with a legal adviser, speak with your insurance agent to consider adding Employment Practices Liability coverage to protect your company against wrongful termination, discrimination (age, sex, race, disability, etc.) or sexual harassment lawsuits.

7. Workers Compensation Claims

Small business owners often struggle with understanding their employee health and safety obligations. Unlike their larger counterparts, small businesses have the same responsibility to indemnify workers who are injured or become ill during the course of their employment, but lack the human resources expertise to manage the workers compensation claims process and overall costs. Employee injuries have an impact on insurance premiums, which can increase your costs for years to come.

Aside from obvious preventative safety measures and training, small business owner may want to consider utilizing a third-party risk management specialist. These experts can review your exposures, address inefficiencies in the claims process and help you reduce accident rates for long-term savings.

8. Damage, Loss, Theft of Property, Equipment or Electronic Data

A small business is often responsible for commercial property, crucial equipment and costly electronics. Take a complete inventory of all your assets to determine how a loss might affect your business and how much coverage you need. It is vital that small business have the proper amount of Commercial Property Insurance, Equipment Coverage and Cyber Liability Insurance.

Property coverage can come in many forms to suit your specific needs, but a typical policy will provide the replacement cost value for your building, cash value for your business property. Equipment coverage can replace your machinery. And cyber liability coverage can protect your business from loss of electronic data, cyber-attack and other internet-based threats.

9. Environmental & Pollution Liability Losses

Unless you carry Environmental Insurance or Contractor Pollution Insurance, you may be uninsured against significant environmental or contractors pollution fines. Protect yourself from environmental impacts resulting in bodily injury, property damage or remediation costs.

Many of these risks can be managed with the proper insurance coverage, but successful risk management also involves prevention, training and contingency planning.

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About Terri A. Kamoto

Senior writer for FSN - Terri is a former financial analyst dedicated to making personal finances, budgeting, investment and insurance advice accessible, up to date and easy to understand. It is hard to find professional advice written in a language someone without a financial background can understand. Terri helps companies synthesize industry lingo and expertise into clear and informative content which builds smarter, financially successful individuals. You can find Terri on !

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