Optimism is the fuel that drives the entrepreneurial spirit, and while it’s important to have, too much of it can blind you to small business risk.
When your business plan leans only on the best-case scenario, you’re really building on a house of cards. One disruption – a fire, a lawsuit, a supply chain breakdown – can send everything crashing down. That’s why the most resilient business owners balance optimism with realism. They don’t just react to challenges; they build strategies to manage risk before it becomes a crisis.
If you want your business to weather storms and keep growing, understanding the biggest threats you face is the first step. By recognizing where small business risk shows up, you can create a plan that protects your people, profits and purpose. As you move through this list, think about which risks could hit your business hardest – and whether you’re truly prepared to manage them.
Once you're done, check out our blog that walks small business owners through four questions to safeguard against current and emerging risks.
Your property is often your biggest asset – and one of the most vulnerable. For the long-term security of your business, it’s critical to evaluate potential threats to your property and have a plan in place.
Start by taking a complete inventory of all your assets. Ask yourself: how would a loss impact operations? How much coverage would I need to recover? Property insurance comes in many forms, but a typical policy provides replacement cost value for your building and actual cash value for your business property.
It’s tempting to cut costs by assuming the “best case scenario.” But leaving your business underinsured is a gamble that could cost you everything.
The U.S. Department of Labor estimates that more than 40% of businesses never reopen following a disaster such as a fire or flood, making business continuity one of the most overlooked small business risks.
Ask yourself, is your business truly prepared to weather the storm if disaster strikes? Could it survive if you were forced to shut down temporarily?
Ideally you would move to a temporary location while your business is being repaired, but this plan requires having the proper coverage to support it. Traditional Property Insurance does not cover a move or the loss of income while the permanent business location is being repaired. This means that ill-prepared businesses are often forced to completely shut down operations during the repair, which can do irreparable damage to their brand, their bottom line and their employees who are suddenly without work.
This is where Business Interruption coverage comes in. By helping to cover the operating expenses and payroll during downtown, you can keep employees engaged and even reallocate them to help with recovery efforts.
While this coverage is often overlooked, it's invaluable. It can make the difference between bouncing back and closing your doors for good.
Learn what four critical factors of business continuity planning that business owners miss.
No matter how careful you are, liability is a small business risk that comes with the territory. The only way to eliminate it completely would be to shut down – which, of course, isn’t an option.
The next best thing? Protecting your assets by carrying adequate Commercial Liability (CGL) Insurance coverage. CGL policies provide coverage for claims of bodily injury or other physical injury, personal injury (libel or slander), advertising injury and property damage as a result of your products, premises or operations.
A CGL policy with adequate coverage limits allow you to continue operating normally while handling real or fraudulent claims of negligence/wrongdoing – all while providing coverage for the cost of defending and settling claims.
Lots of companies are built around the skills of a handful of individuals, but that reliance can become a serious small business risk
If an employee crucial to the functioning of your business departs unexpectedly due to death or injury, would day-to-day operations continue as usual or would disorder and uncertainty ensue? Would you be able to maintain your current level of performance and current revenue stream? How would you cover for the financial loss of the employee or pay for a temporary replacement during his or her recovery?
Key Person Insurance can help you answer these questions with confidence. This coverage is designed to provide financial stability in a time of stress and uncertainty, allowing you to keep your business moving forward without missing a beat.
Learn how investing in key personnel can future proof your company.
Owners of smaller companies, especially those with fewer than 10 employees, often struggle to fully understand their employee health and safety obligations. But the responsibility is the same for everyone: whether you have five employees or five hundred, you’re required to provide support for workers who are injured or become ill on the job.
What many business owners don’t realize is just how far-reaching the effects of a workplace accident can be. Beyond immediate medical treatment and lost production time, on-the-job injuries can drive up workers’ compensation premiums – sometimes for years.
The good news: you can control this small business risk. Things like clear pre- and post-accident procedures, return to work programs, and strong safety programs help to lower accident rates altogether. These steps not only protect your team but also create significant long-term savings.
Many small businesses don’t have a dedicated IT department – or even basic cybersecurity measures – which makes them prime targets for cybercriminals looking for an easy score. With liability costs averaging more than $200 per compromised record, a single data breach involving hundreds or thousands of customer records can be financially devastating.
If your company stores customer information electronically, strong security practices are essential. Firewalls, regular updates, and employee training can all help reduce exposure. But prevention alone isn’t always enough. Cyber Liability Insurance provides an added layer of protection, covering damages from cyberattacks, data breaches, and other digital threats.
In today’s connected world, overlooking cybersecurity isn’t just risky – it’s a small business risk that can bring operations to a halt.
Protect yourself further by checking out our six tips for creating a cybersecurity culture.
When you think of an environmental small business risk, you might picture a large manufacturer, mining company or petroleum operation. But they’re not the only ones at risk. Many industries – even those you wouldn’t expect – face environmental liability exposures.
That’s why it’s so important to conduct a comprehensive risk analysis to understand your own level of exposure. Most standard commercial insurance policies include pollution exclusions, which means you could be left uncovered if an environmental incident occurs. Without Environmental Insurance, your business may be vulnerable to significant cleanup costs, lawsuits, and long-term financial damage.
From the first job posting to the final exit interview, every stage of the employment relationship carries risk. In fact, almost 40% of small business owners were faced with employee litigation in 2023.
And while many of these lawsuits may be baseless, the cost and time required to defend them can be overwhelming.
Ask yourself: could your company afford the financial hit of a wrongful termination or discrimination claim? If not, Employment Practices Liability Insurance is essential. This coverage protects your business against claims of wrongful termination, discrimination (age, sex, race, disability), and sexual harassment – giving you a safety net against one of the most common and costly small business risks.
In the early days of running a business, reviewing every line of every contract can feel impossible. But overlooking the fine print is a small business risk that can come back to haunt you. Savvy suppliers or customers may shift liability your way through hidden clauses, leaving you exposed to risks you never intended to accept.
It’s tempting to cut costs by skipping legal review, but doing so can end up costing far more in the long run – both in legal fees and in gaps in your insurance coverage. Investing the time and resources upfront ensures you’re not taking on unnecessary risk that could undermine your business later.
If your business depends on third-party suppliers, you’re also depending on their ability to keep operating. A disaster that halts one of your suppliers could have a crippling effect on your production – and that’s a small business risk you can’t ignore.
Contingency planning and other risk management techniques can help, but in today’s global economy, some exposures are simply outside your control. In a perfect world, you could avoid doing business with high-risk partners altogether. But in reality, pricing pressures and niche markets often limit your options.
That’s where Supply Chain Insurance comes in. This coverage helps offset losses caused by supplier interruptions, allowing you to keep working with confidence – even when risks are beyond your direct control.
Every business owner faces risk – but not every business owner is prepared for it. Whether it’s a liability claim, employee injury or unexpected interruption, the right insurance can be the difference between recovery and ruin. But insurance is just one piece of the puzzle.
At Ellerbrock-Norris, we help you see the full picture. Through our ENCORE process, we evaluate risk across ten critical areas including insurance – and build a custom strategy designed to protect your business, your people, and your future.
Let’s build a plan that works. Get in touch with our team to start your free custom risk assessment today.