Risk is the chance that a loss, injury, or peril will occur, or that an outcome will differ from what the business owner expected, often preventing a company from meeting its financial or operational goals.

Business Interruption

Many businesses have suffered disruption and income losses due to government-imposed shutdowns or supply chain problems related to the pandemic. This has highlighted the downside of global production and supply chains, which have replaced local manufacturing and sourcing for many companies in recent decades.

Pandemic Outbreak

As a result of the global health crisis, some small businesses have been forced to close temporarily, shut down for good, or even declare bankruptcy. Some have had trouble paying rent or have been forced to lay off workers, too. Almost 94% of companies surveyed in a recent report, reported a disruption to their supply chains due to the coronavirus pandemic.

Cyber Incidents

As businesses become increasingly more dependent on technology and intangible assets, cyber risks are a major concern. The pandemic has accelerated this trend, according to the Euler Hermes survey, with a quarter of respondents facing a disruption coming from the IT, tech, and energy sectors. Because many small businesses lack a robust security system, they are vulnerable to data breaches, ransomware, and other types of cyberattacks.

Small businesses can protect themselves against cyber risks by investing in robust antivirus software and purchasing cyber insurance coverage.

Other External Risks

  • Market Developments: With the world in the midst of an economic downturn, many industries are experiencing volatility

As financially weak companies leave the marketplace, new competitors will enter, putting pressure on the businesses that remain.

  • Legislative and Regulatory Changes: This category includes risks like marijuana legislation, state laws redefining the meaning of “independent contractor,” and laws requiring paid sick leave.
  • Natural Catastrophes: Many small businesses are located in areas vulnerable to natural catastrophes, such as hurricanes, tornadoes, wildfires, or floods. Many natural perils are covered by standard property policies but some catastrophes, like earthquakes and floods, require specialized insurance.
  • Macroeconomic Developments: These include monetary policies, interest rates, inflation, and deflation.
  • Climate Change and Volatile Weather: Climate change increases the frequency and severity of heat waves, windstorms, wildfires, and other natural catastrophes that can damage business property.
  • Political Risks and Violence: According to Allianz, riots and other forms of civil unrest now challenge terrorism as the main political risk exposure for businesses. Small businesses located in urban areas may suffer property losses during riots or other civil disturbances. Fortunately, riot and civil commotion are covered perils under most property insurance policies.

Internal Risks

Fire and Explosion

These perils can cause major damage. They also can generate income losses if they prevent companies from serving their customers or resuming their operations in a timely manner. Physical damage caused by fire and explosion is covered by standard property policies, and revenue losses can be covered by business income insurance.

Shortage of Skilled Workers

Small businesses employ nearly half of the U.S. workforce. Many businesses were having difficulty recruiting skilled workers before the pandemic began, and the outbreak has compounded the problem.

Employee Injuries

Workplace injuries are a serious risk for small businesses. They can increase the employer’s workers’ compensation costs and disrupt operations. Many small businesses rely on a few key workers, and may have trouble functioning if one is out on disability. Businesses can help prevent injuries by creating a workplace safety plan.

How Business Owners Can Manage Risk

While many of the external risks that worry business owners around the world are out of their control, it’s possible to prepare in advance, minimizing the effects of many internal risks.

Whether human, technical, or financial, it’s possible to identify and anticipate such risks in your business plan. Look at anything that could halt, slow, or affect the profit of your business.

Pinpointing and assessing top business risks is something that will require time and should be revisited periodically. Be sure to schedule time in your calendar to consider and plan for areas of business risk.

 

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