There are currently nearly 184,000 small businesses throughout Idaho, accounting for 99.2% of the state’s companies, according to the U.S. Bureau of Labor Statistics and the Census. Small businesses are the heart and soul of our economy, providing unique and essential goods and services to communities and employing people from all walks of life.
There are many benefits of small busiesses, including autonomy, flexibility, and plenty of room for innovation. However, as with firms of any size, there are risks that come with owning and working for a small business.
Here are three of the most common risks business owners should mitigate to succeed.
Financial risks are driven by profit loss
When all is said and done, one of the primary goals of any business is to be profitable. But when financial losses occur, a business’s potential cash flow loss becomes a major risk. If a company does not have sufficient earnings to pay off debts and other expenses on time, there is a greater chance of loan delinquencies that put the business in jeopardy.
To help manage financial risk, small business owners should set strict budget goals while minimizing their debts. This helps save money in both the short- and long-term and creates a healthy cash flow, particularly when sales are steady. It is also important to keep up to date on payments, including rent, bills, and loans. Most importantly, persistently generating sales and recruiting new customers is the key to any business’s success. If a small business is heavily reliant on a handful of customers, the risk of their bottom line decaying becomes greater, especially if customers take their wallets elsewhere.
Operational risks deal with day-to-day tasks
Running a business is complex and involves a wide variety of everyday operational risks such as process errors, employee misconduct and technical failures. These types of operational losses are caused by elements that disrupt how a company functions. Examples include unethical acts brought upon by people such as employees charging customers incorrect amounts, embezzlement, failure to comply by workplace safety practices, and missed deadlines, as well as unpredictable occurrences like severe weather damage, cybersecurity attacks, and supply chain complications.
When routine activities negatively affect profits, operations must be thoroughly evaluated. To lessen operational risks, prioritize teamwide and individual training sessions so everyone is on the same page when it comes to company processes and policies. Thereafter, ensure all workers are following the guidelines and advocating for them. Additionally, establishing strict protocols among staff is essential to keep people safe and prepared. It is crucial to regularly monitor and assess operational risks to minimize their impact.
Reputation risks affect a brand’s image
Maintaining a solid reputation is essential to any brand’s success. In fact, a business’s reputation is its most vital asset, and when a reputation is weakened in any way, many risks arise. Ranging from poor publicity to negative reviews or word of mouth to customer lawsuits,
reputation risk is often controlled by outside sources — which can make it challenging to manage. However, in some instances, such as product recalls, accidents involving a company’s products, and unethical or illegal actions of team members and leaders, the source of the issue lies within the business. When a small business endures any reputation damage, it can suffer an immediate revenue loss. Worse yet, suppliers, employees, and partners can promptly sever ties in response.
To alleviate — or better yet, prevent — reputation risks, small business owners should be highly aware of any matters and address them immediately. Properly handling issues as soon as possible and being honest and transparent with your customer base and the community can go a long way. Delivering excellent customer service is another way to ensure positive experiences, leading to a favorable brand reputation.
Owning a small business can be an incredibly rewarding experience, but it is important to make sure you are fully covered. To learn more about business insurance from the Farm Bureau Mutual Insurance Company of Idaho, contact your local agent.