You may be an optimist, but when it comes to running a business it pays to be prepared for worst-case scenarios. According to the Institute for Business & Home Safety, a quarter of businesses shut down permanently in the wake of an unforeseen disaster, reports the Wall Street Journal.
Here are five of the biggest risks you face as a small-business owner — and how to protect against them.
- Damage to your reputation. Is a competitor spreading nasty rumors about your business, or has a customer’s negative blog post climbed straight to the top of your Google search results? Reputation problems are a real risk for businesses of all kinds. To prevent problems, closely manage your online reputation, and talk with employees about their behavior both within and outside of the workplace to prevent them from making any gaffes that could have negative repercussions for your company.
- Lawsuits. Wrongful termination, accidents and workers’ compensation, libel, and sexual harassment are just a few of the many types of litigation that business owners may face. To protect your company, purchase a business liability insurance policy that covers legal fees and any resulting damages — and get a referral for an attorney who specializes in small-business issues.
- Security breaches. If you’re collecting customers’ private online data, such as email addresses, passwords, and social security numbers, your company is vulnerable to data breaches by internet hackers. Although it’s nearly impossible to completely safeguard your company against these situations, taking precautionary measures and working with an online security consultant can help keep you out of trouble.
- Acts of God. If you’re located in an area prone to hurricanes or tornados, storms could damage your inventory and/or place of business, cause thousands of dollars in losses, and shut down your business indefinitely. Even if you aren’t, it’s impossible to know if a flood, earthquake, or other calamity might strike and destroy your place of business. Your standard business liability policy is likely to cover various weather-related disasters, but check in with your agent to make sure there aren’t any exclusions for which you need to buy a rider or separate policy. (Earthquake damage is not typically covered in California without a separate policy, for example.) Purchasing business-interruption insurance, which provides supplementary income in the event that you’re forced to shut your doors for reasons beyond your control, can help to keep the cash flowing.
- Illness, disability, or death. If you or a key partner or employee becomes ill, disabled, or — even worse — dies unexpectedly, where would that leave your business? When someone who plays an essential role in your business is out of commission, whether temporarily or permanently, it can put a major strain on operations and jeopardize the company. Make sure that you have life, health, and disability insurance that covers you and your family (or business partners) in such scenarios. Consider taking out key employee insurance on anyone who your business couldn’t do without.