Stay in the know. Subscribe to Currents
CurrentManage

13 Risk Management Strategies for Small Businesses & How to Implement Them

8 Mins read

Small businesses face unique challenges that require tailored risk management strategies. We’ve gathered insights from a Business Development Manager to a Marketing Team Leader, offering a range of perspectives on this critical issue. From conducting comprehensive risk assessments to establishing comprehensive emergency plans, here are thirteen expert strategies to safeguard your small business.

Conduct Comprehensive Risk Assessments

One crucial risk management strategy I recommend for small businesses is conducting regular and comprehensive risk assessments. This approach helps identify potential threats and vulnerabilities, allowing the business to implement proactive measures to mitigate risks before they become significant issues.

To put this strategy into action, start by assembling a risk management team consisting of key stakeholders from different departments within the company. This team should conduct thorough assessments, evaluating both internal and external factors that could impact the business. Key areas to focus on include financial stability, cybersecurity, operational efficiency, and compliance with legal and regulatory requirements.

Once the assessment is complete, the team should develop a risk management plan that outlines specific actions to address identified risks. This plan might include steps such as investing in cybersecurity measures, diversifying revenue streams, obtaining adequate insurance coverage, and creating contingency plans for critical operations. Regularly review and update the risk management plan to ensure it remains relevant and effective as the business evolves. By taking these proactive steps, small businesses can better prepare for potential challenges and safeguard their long-term success.

Richard Dalder, Business Development Manager, Tradervue

Diversify Digital Marketing Efforts

One risk management strategy I would recommend for small businesses is developing a diversified digital marketing approach. Given my experience with AQ Marketing, we’ve seen small businesses overly reliant on a single marketing channel facing significant disruptions when changes occur. For instance, algorithm updates on Google or Facebook can dramatically impact traffic if you’re too dependent on one platform.

To mitigate this risk, small businesses should spread their efforts across multiple channels. At AQ Marketing, we’ve had clients boost their resilience by integrating SEO, PPC, and social media marketing. For example, a local cleaning service saw a 30% increase in leads by diversifying its marketing efforts. They balanced investments in Google Ads, organic search optimization, and active social media engagement.

Putting this strategy into action involves assessing current marketing activities and identifying gaps. Start by allocating a portion of your budget to explore underutilized channels. Track performance metrics meticulously to determine ROI and adjust allocations as needed. This method not only spreads risk but also taps into new customer bases, strengthening overall market presence.

Robert P. Dickey, President and CEO, AQ Marketing

Identify Threats Through Brainstorming

I teach our clients that all risks come to pass as a result of catastrophe, ignorance, or ineptitude. We use a brainstorming session with our clients to identify the threats to their companies and craft ways to address them. Once you get those three basic sources down, the questions become much more incisive and effective.

Matthew Davis, Business Lawyer and Firm Owner, Davis Business Law

Spread Investments Across Markets

In my experience, one risk management strategy I often recommend for small businesses is diversification. This involves spreading investments, products, and services across different markets or industries to minimize the impact of potential losses. 

To put this strategy into action, I suggest assessing our current offerings and exploring opportunities to expand into related but diverse areas. 

Additionally, considering investing in a mix of financial instruments or partnering with complementary businesses can further spread risk. By diversifying our operations, we can better protect ourselves against unexpected downturns or disruptions in specific sectors.

Adam Martin, Managing Director, Nova Acoustics

Implement Regular Data Backups

Data loss can be devastating for small businesses. I recommend a simple yet powerful risk management strategy: regular data backups. Set up automated backups daily or weekly, depending on your data volume. This ensures critical information is always protected. 

Follow the 3-2-1 rule: store backups in three different locations—one local copy on a separate hard drive, two offsite copies like cloud storage, and a secondary location. Regularly test your backups to ensure they can be restored quickly and accurately in case of a disaster.

Beth Worthy, Co-Founder and President, GMR Transcription Services, Inc.

Regularly Assess Business Risks

As a roofer, I’ve seen my fair share of businesses facing unexpected problems. One strategy that every small business owner should consider is regular risk assessment. Here’s how to put it into action:

  1. Gather your crew: Get everyone together, from sales to admin to the folks on the job site. Everyone has a different perspective and can help identify potential risks.
  2. Brainstorm like crazy: Think of every possible thing that could go wrong, big or small. Is there a chance a supplier goes out of business? What if a key employee quits? Consider financial risks, safety hazards, even damage to reputation.
  3. Rank the risks: Not all risks are created equal. Figure out which ones are most likely to happen and how badly they could hurt the business. A minor equipment breakdown might be less risky than a critical software failure.
  4. Develop a plan: For each risk, brainstorm ways to avoid it, reduce its impact, or prepare to bounce back. Maybe it’s having a backup supplier or cross-training employees on different tasks. Having a plan in place makes all the difference when the unexpected hits.
  5. Review and revise: The business world changes, so your risk assessment should too. Schedule regular reviews, like quarterly or annually, to update your plan and identify any new threats.

By taking the time to identify and plan for potential problems, you can avoid a lot of headaches down the road. It’s like putting a roof on your business—a little preventative maintenance goes a long way!

Jimmy Thurman, Owner, All American Restoration

Diversify Supplier Relationships

Diversifying suppliers is one of the most important risk management strategies for small businesses. A single supplier can cause supply chain issues and quality problems, or the supplier’s financial instability can halt your business operations.

Here’s how you can put this strategy into action:

  • Identify Critical Supplies: List all the raw materials, products, or services you purchase from third-party vendors. Focus on those that are essential for your business continuity.
  • Research and Vet Multiple Suppliers: Research and build relationships with multiple vendors for each critical order. Test their dependability, quality, and financial strength. Place small start-up orders to test service and product performance.
  • Negotiate Flexible Contracts: Try to find long-term contracts that are flexible enough to allow you to change suppliers with little to no penalties. This means you can switch suppliers quickly if one has a problem.
  • Monitor and Review: Review supplier performance regularly. Monitor market trends and identify risks that could impact your supply chain with tools such as supplier scorecards.
  • Build Relationships: Build good relationships with your vendors. Communication is key, and early detection and collaborative planning can help reduce risks.

As a Stallion Express team member, I can attest to the value of this approach. For instance, during the pandemic, having multiple shipping partners enabled us to manage disruptions and keep our clients’ services running smoothly.

Diversification is more than just a hedge; it’s an active strategy to help your business weather the storm.

Jen Seran, Director of Operations, Stallion Express

Create Multiple Income Sources

A key risk management strategy I recommend for small businesses is to diversify your income sources. Don’t put all your eggs in one basket. Whether it’s through offering a variety of products, entering different markets, or exploring additional service lines, diversification can safeguard your business against market fluctuations and changing consumer preferences.

Putting this into action involves understanding your customers and the broader market. Start small by introducing complementary products or services that align with your existing offerings. Monitor these closely to see what resonates with your audience. 

Over time, you can expand more confidently into new areas. This approach not only minimizes financial risk but can also open up new revenue streams, making your business more resilient and adaptable.

Daniel Bunn, Managing Director, Innovate Agency

Expand Product and Service Offerings

In my experience, one risk management strategy I often recommend for small businesses is diversification. This approach involves spreading investments, products, and services across different markets or industries to mitigate potential losses. 

To implement this strategy, we typically assess our current offerings and explore opportunities to expand into related but diverse areas. Additionally, we consider investing in a mix of financial instruments or partnering with complementary businesses to spread risk further. 

Through diversifying our operations, we aim to better protect ourselves against unexpected downturns or disruptions in specific sectors.

Niall Vallely, Managing Director, 3Dental

Proactively Enhance Cybersecurity Measures

Small businesses often overlook the importance of robust cybersecurity until it’s too late. Implementing proactive cybersecurity measures can significantly minimize risks. Start with a comprehensive audit of your current IT infrastructure to identify vulnerabilities. Invest in high-quality antivirus software and ensure all systems are regularly updated to guard against new threats. Training your employees on recognizing phishing attacks and securing sensitive data is also crucial. This prevents human error, which is a common gateway for cyber threats.

Establish a clear cybersecurity policy and make sure everyone in the company understands it. Regularly back up data and use strong, unique passwords for all accounts. Introducing multi-factor authentication adds another layer of security, making it harder for unauthorized users to gain access.

Sam Rock, Operations Manager, Infinity Laser Spa

Conduct Quarterly Financial Audits

That would be implementing regular financial audits. These audits help identify discrepancies, potential fraud, and inefficiencies early on, allowing businesses to address issues before they escalate. To put this into action, engage a qualified accountant to conduct quarterly audits and thoroughly review financial statements.

It’s a proactive approach that ensures accurate financial reporting and enhances decision-making processes by providing a clear view of the business’s financial health. Additionally, consistent audits build credibility with stakeholders and can uncover opportunities for cost savings and operational improvements. By maintaining regular financial oversight, small businesses can safeguard against financial risks and position themselves for sustainable growth.

Kelly Chan, Marketing Manager, Kinore Accountants

Focus on Advanced Cybersecurity Training

One of our recent big focuses for risk management has been on cybersecurity. Selling our products online means that we need to be very careful when it comes to cyber threats and different procedures. This helps us keep our customers safe as well as ensures we remain compliant with different laws and regulations. 

Cybercrime is a top threat to modern businesses, and pretty much every business is required to have some sort of cybersecurity measures in place. At Gigli, we’ve been going through advanced training materials, restructuring our company’s security procedures, and more to ensure we continue to stay up to date with various threats and minimize risk.

Kam Talebi, CEO of Gigli, Gigli

Establish Comprehensive Emergency Plans

One effective risk management strategy for small businesses is to establish a comprehensive emergency response plan. This plan isn’t just about having fire drills; it’s about preparing for a range of possible disruptions, like power outages, natural disasters, or even cyber-attacks. Start by identifying the most likely risks your business could face. Then, create a clear, step-by-step guide for employees to follow in each scenario. Make sure everyone knows their role, who to contact, and where to find emergency supplies. Regularly update and practice these plans so everyone feels comfortable and prepared.

Communicating this plan effectively is crucial. Hold regular training sessions and make the information easily accessible, whether that’s through a physical copy or an online portal. Create a culture where everyone knows that safety is a top priority. This kind of proactive planning not only helps protect your assets and employees but also builds trust and reliability with clients, knowing that your business can handle unexpected events smoothly.

Lucy Wenham, Marketing Team Leader, ID Card Centre

Brett Farmiloe is the founder of Featured, a Q&A platform that connects brands with expert insights.

Risk management stock image by iHumnoi/Shutterstock

Related posts
CurrentTechnology

Methods to Check Database Corruption in SQL Server

6 Mins read
Database corruption in SQL Server, a Relational Database Management System, can pose a major threat to organizations’ functioning due to data loss…
CurrentTechnology

The Generative Generation: AI, Chatbots and Financial Compliance

5 Mins read
In March 2023, SEC Chairman Gary Gensler described AI (Artificial Intelligence) as “the most transformative technology of our time, on par with…
CurrentManage

Want Higher Profits and Morale in Your Business? Keep Your Employees

3 Mins read
Despite the existing data, many employers remain oblivious to the silent profit killer lurking within their companies: employee turnover. While attracting top…