Three risks small businesses face and how to combat them

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The excitement of starting a new business can be all consuming. Failure though can often come down to the neglect of some of the key risks that every small company ownerwill face. Deepak Soni, head of small business insurance at Hiscox takes a look at some of those risks and suggests ways to reduce them to ensure your business survives those first, perilous steps.

With any new business there is an element of risk involved. After all, taking the plunge and setting up on your own is a huge step and one that should be taken seriously. A lot of thought needs to be given to the type of business you plan to start, the target demographic and whether you have a unique selling point (USP) that will put you a step ahead of the competition.
While there is bound to be risk involved when a new business is conceptualised, there are ways in which these risks can be minimised. It may be tempting to ignore risks related to legal, financial, or staffing issues, but it’s better to know how to deal with them, and how to prevent them so that you don’t face problems in the future.
For example, while you should hopefully never face the prospect of bankruptcy, having a financial plan in place will help to minimise the risk of debt and the serious impact it can have on your business. Risk management may seem daunting, but if you break it down into stages, it shouldn’t be too difficult.

Financial risk

Money matters can be the bane of your business’ existence if you don’t get things in order. Both external and internal factors can hugely affect your cash flow and impact substantially on the chances of success.
Before you even start your company, you need to create a foolproof business and financial plan that you can use when chatting to financial providers, or refer to for your own benefit. Planning your financial projections will give you more of an idea of what to expect, while minimising the risk of fumbling blindly into the future.
Make sure that you have the right amount of start-up funds available to you so that you know you can afford to run with your venture. If you don’t have the funds yourself, it’s recommended you chat to an advisor for help.
Those who can’t secure financing tend to use their own personal savings but remember that if the business fails, you also risk losing out personally.

Legal risks

The last thing a small business owner will want to face is legal proceedings. You could be sued for any number of reasons: failing in a duty of care to a client; a service or product you provide not performing as a client expects; a member of staff suffering an injury at work; a member of the public tripping over a piece of office equipment at your premises; or even you spilling a cup of coffee over a client’s computer. What about that picture on your website? Do you have the relevant copyright? And where did you get the idea for your business? Someone could claim that you are infringing their intellectual property.
Again, good risk management here is essential in indentifying the potential risks your business faces and taking precautions which can range from providing a safe working environment, to making sure you have permission to use any third party imagery on websites for example.
You will also need to ensure that all the necessary business insurance is in place. Some areas of cover such as employer’s liability are mandatory for virtually every business that has employees. Other policies such as professional indemnity are often required by clients as a condition of working with them. Additional areas of cover include public liability and product liability as well as cover for office buildings and contents.

Staff risk

Investing in that first employee is often one of the biggest decisions any small business will take. Not only is there the financial commitment of a regular monthly wage to pay – regardless of how the business has done that month – but there are swathes of policies and procedures that come with taking on employees.
You have a legal duty to provide a safe and comfortable working environment. Government bodies such as the Health and Safety Executive provide useful risk assessment information to make sure health and safety isn’t compromised and that you stay within the law. As mentioned, employer’s liability cover is usually mandatory.
Staff training of course will be essential to make sure that the service your business delivers continues to be of high quality and your clients don’t have cause to complain, or, even worse, sue you.
Staff fraud and dishonesty can also be an unfortunate consequence and again, you will need to have procedures in place to prevent it from happening and deal with it if it does.

Ensuring success

Many new businesses fail not because the product or service was a failure but because they failed to proactively tackle the key areas of risk that come with setting up any business. If you can identify the risks and deal with them before they become an issue, you will be well on the way to a fruitful future as a business owner. 

About Dan Martin

About Dan Martin

Dan Martin has 10 years experience as a journalist writing about entrepreneurs and the issues that affect them.

After three years working as a researcher for Sky News, he joined as a reporter. This was followed by two years working as news editor for during which time Dan also contributed to Growing Business magazine. In 2006, he joined Sift Media as business editor before being promoted to editor of He also has responsibility for UK Business Forums, the UK’s most active online forums for small business entrepreneurs. In addition, Dan founded The Pitch,'s nationwide competition for small business owners. He host the grand finals in 2009 and 2010 in front of an audience of 300. 

As well as interviewing many entrepreneurs, Dan has written content for leading business organisations such as the Department for Business, Enterprise and Regulatory Reform, British Chambers of Commerce, Forum of Private Business, Investors in People and Business Link for London. Among the publications that have quoted Dan are The Times, Mail On Sunday, Financial Times, Personnel Today and Bristol Evening Post. His articles have also been published by publications including eGov Monitor, Virgin Express in-flight magazine and Personal Success.

Dan regularly speaks at events about small business and social media issues. Among the events he has presented at are the National Federation of Enterprise Agencies' annual conference, Learning Technologies, Publishing Expo and World of Learning. He has also chaired high profile debates featuring senior representatives from Business Link and the Federation of Small Businesses and Dragons' Den judge James Caan.

Dan was named the 10th most influential political blogger on Twitter by the Independent and won the public award for best B2B tweeter at the Golden Twits 2010. He also organised the Bristol Twestival, part of a global Twitter driven charity initiative, in February 2009 and March 2010. Volunteers from 175 cities around the world organised events using the social network. In total, $350,000 was raised for charity: water in 2009 and $500,000 for Concern in 2010. In Bristol, £1,500 and £5,600 was raised.


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By jmjm1663
14th Nov 2013 09:11

It is essential to have a business plan before you start - and once you start to keep on top of managing your income and expenses and cash flow.  As Financial Fitness Coach for QuickBooks, I always recommend you dont rely on Excel and Word templates for invoicing but get  a proper accounting system which can easiliy give you the information to manage your business securely.

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