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Tips for Small Business Risk Management

Risk is often something that is at the forefront of people’s minds. Most of the time, during everyday life, the potential risks in question are pretty mundane. However, when it comes to the risks involved with the management of small businesses, they can be incredibly impactful. There are many common mistakes that small businesses make, one of the most frequent ones being not having a detailed enough plan to prevent or combat potential business risks. Although some risks are harder to plan for than others, identifying a few high-risk elements of your business can help you better prepare.



Employee Morale and Turnover Rate

Unhappy employees can often cause uncontrollable repercussions to a business, which can often result in lost revenue. These acts may be accidental or intentional and can include a discouraged employee forgetting to place an order for more products or an angered employee openly discussing confidential business information. It’s important to make sure that all your employees are content in their daily jobs and feel as if they are being impactful with their work.


Employee turnover can be extremely costly to a business, as it has several hidden expenses. In a case study by Maia Josebachvili, Head of People at Stripe, she argues  “the difference between average and slightly optimized People Practices for one salesperson over the course of three years is $1,300,000 in net revenue…” By retaining current employees, not only do you avoid the costs involved in hiring a new employee, but you often see an increase in their efficiency over longer periods of time.


It’s important to attempt to keep employee morale high in order to increase the quality of work and simultaneously decrease costly turnover. Small but meaningful benefits and perks to a job can make all the difference in letting an employee know that both they and their work are appreciated, rather than ignoring the hard efforts of your workers.



Outdated Technology

Outdated or defunct company technology presents a high level of risk for any company, and an even greater one for growing small businesses. Without proper physical technology or technological policies in place, companies can find themselves falling behind the competition.


Slow or outdated technology can make a simple job take much longer and can also make that same task incredibly frustrating. Without strong password requirements, such as including capital letters or symbols, information can be easily stolen or accidentally leaked, which is a colossal breach of trust for your business. Following best practices when it comes to updating technology hardware and software and then training employees on these practices will not only increase efficiency but also decrease errors and minimize risk.


Cybersecurity is playing an increasingly important role in businesses, and making sure that you have the proper security measures in place is crucial for protecting your small business from cyber threats. As technology in general plays a larger role in businesses, technological threats expand with it. Criminals can target any number of vital and confidential pieces of information, from employee social security numbers to the credit card information of clients. Ensuring you have up-to-date cybersecurity protection can prevent business or customer information from falling into the wrong hands.



Financial Risk and Reward

As most people, unfortunately, discover sooner, rather than later, the financial world is rife with different levels of risk. One of the main things to keep in mind when performing a financial risk assessment is that there are in general two different types of risk: internal and external. This goes for almost any type of risk but is especially important when considering the financial aspects of a business.


External risks are a little harder to avoid, but they can be managed. There are always systematic risks with markets; these are unavoidable. The positive side is that everyone else is dealing with those same risks, which helps to even the playing field. Other external risks such as credit rates, regulations, and the general health of the economy can be managed by segmenting your investments. By allotting a certain percentage of funds into riskier ventures and a certain percentage to safer ones, you can balance the risk-reward aspect of the financial world to the best of your abilities.


Internal risks, while still present, are typically much easier to predict and manage. Most of your financials will revolve around the current liquidity of your assets. Since you always want to have enough liquidity to cover your current liabilities, you have a built-in stopping point. One way to ensure a level of financial stability is to monitor your account receivables and make sure that you are obtaining them in a timely manner.




Small businesses come with a variety of risks. Educating yourself about the most common risks that you may face and preparing strategies or taking preventative measures can help manage these risks proactively. Keeping employees engaged and happy can not only improve the quality of their work but also decrease the lofty expenses involved with employee turnover. Updating your company’s technology frequently and having the proper cybersecurity in place can help you keep vital information secure and out of nefarious hands. Understanding the common types of risks involved with most aspects of finance can better help you identify the strongest option for your business. Managing risk is never an easy task, but facing it head-on and armed with the required knowledge can help ease the process.



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