Risk Management for Small Business Success

Telling businesses to ‘expect the unexpected’ almost feels laughable these days, especially because these past years have really redefined what unpredictability means. But even in this chaos, risk management, especially for small businesses, is something that cannot be ignored.

Here is what you need to know to properly and effectively manage risk for your small business, including risk management strategies.

What is Risk Management? 

Any threat to a business, whether external or internal, counts as a business risk. And let's be real, risks aren't just possible, they are inevitable. These risks can include factors outside of a company’s control, like inflation, or internal issues like organizational management. 

Risk management isn't just about playing defense all the time, it's about empowering your business to identify, confront, and neutralize threats before they take you down. It refers to the practice of identifying areas of potential loss and taking steps to minimize the impact of the risks they impose on an organization.

To effectively reduce risk, business owners need to spend time building out risk management strategies for internal, external, reputational, and/or operational risks. Having a solid and comprehensive risk management plan not only helps you to make smarter and more informed business decisions, but it also paves the way for a more secure future for your business.

4 Common Risks Small Businesses Face (And How to Minimize Them)

Risk comes in many different forms for small businesses, with some being riskier than others. Below are the most common types of risks small businesses run into, and how to mitigate them. 

1. Financial Risks  

Without money in the bank, it’s hard to run a business at all. Most risks can have a large financial impact on your business, but this type of risk specifically refers to cash flow. For example, incurring large amounts of debt or having the majority of your revenue coming from just one customer, can jeopardize your liquid assets. 

To minimize financial risks, small businesses should: 

• Avoid purchases that pose a higher risk rate, especially if you are unsure your business would survive if something went wrong.

• Decrease personal financial responsibility for losses or damages to a third party by purchasing insurance. 

• Keep updated financial records. (e.g., profit and loss statements, cash flow analysis)

2. Cybersecurity Risks 

Cybersecurity risks happen when your business's private and financial information become exposed in a cyber attack. With so much of our world online, hackers target not only customer information, but your small business’s internal records as well. Smaller companies may be particularly vulnerable because of their limited access to extensive cybersecurity solutions. This comes at a high cost: in 2023, the average cost of a data breach for businesses with fewer than 500 employees exceeded $3.30 million (move this to be the second sentence and condense this paragraph).

To manage cybersecurity risks, small businesses should:

• Invest in fraud protection tools and security solutions to maximize network protection.

• Research and share best practices for detecting phishing (where scammers disguise themselves as trusted sources and trick you into sending over sensitive information, e.g., an email from an unknown source telling you to input your social security number to see your credit card overdraft, true story.) and hacking attempts with the rest of your organization.

• Consider investing in a cyber insurance policy.

3. Reputational Risks 

Reputational risks, or any risk associated with your business’s image, often happen unexpectedly, and with little-to-no warning. Take a single bad online review or negative comment, it might feel easy to brush off at first, but if enough people see it, or if more negative reviews appear, you could start seeing a measurable loss of customers.

Because small businesses rely so heavily on online reviews, they should take the following actions to reduce this type of risk: 

• Monitor your online presence, including what both customers and employees are saying about your company. 

• Prioritize delivering high-quality customer service.

• Monitor customer review scores and keep track of what causes them to fluctuate. 

4. Strategic Risks 

Strategic risks are the bold moved that can make or break your business, like hiring new employees, expanding locations, and creating new partnerships. If these aren't carefully planned, these can backfire.

Here are several ways to minimize strategic risks for your small business: 

• Decide how much risk you’re willing to take on ahead of time. Determine if these risks are worth the time and money that come from implementing a new strategy.

• Create a contingency plan so your business can continue to operate if the risk doesn’t pay off. 

• Plan ahead for the future. Identify areas where you can see major decisions coming down the pipeline. Doing so will help keep your business on track.

How Business Consultants Help With Risk Management for Small Businesses 

Sometimes, a strong risk management plan is the only thing standing between your business and an unprecedented disaster. But with so many risks out there, all with varying degrees of danger, how do you know which areas to prioritize? This is where business consultants come in.

Business consultants use their breadth of resources and depth of knowledge to build out an individualized risk management plan on your behalf. These plans consider all risks listed above, along with additional factors that are routinely updated to keep your organization ahead of shifting patterns. 

At King’s Dream, our business consultants are well-versed in risk management for small businesses. We’re proud to provide our services at an equitable rate to reduce the barriers to business success—especially systemic barriers used to exploit marginalized communities for centuries. 

Ready to minimize risk at your small business? Schedule a free consultation today!

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About King's Dream Business Consulting: Founded in 2019, King's Dream Business Consulting is a small business consulting and management firm established initially in response to Seattle's gentrification and displacement of its minority business communities. To Date, King's Dream has served over 200 small businesses nationwide. King's Dream Business Consulting is a leading provider of business advisory services, offering strategic planning, marketing strategies, financial management, operational efficiency, and human resources consulting. Committed to the success of small businesses, King's Dream Business Consulting provides tailored guidance and support to drive sustainable growth.

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Samaria Johnson writes many things, hopefully none of which you consider boring. She loves taking complex information and breaking it down into engaging, understandable content. Samaria’s goal is to only use her words in ways that help make the world a better place.