Mitigating Small Business Risks

Implementing Financial Management Practices

In the challenging landscape of small business ownership, poor financial management remains a significant pitfall. Risks arise for owners who neglect their financial affairs. By implementing rigorous financial management practices, you can safeguard your business. Consider developing a detailed budget, an expense forecast, monitoring your cash flow and building a financial buffer to provide stability during challenging times.

Premium Funding

That’s why we offer Premium Funding options to help alleviate the burden of large upfront insurance costs, allowing you to spread your premiums over time and better manage your cash flow. We can assist in setting up premium funding arrangements tailored to your specific financial situation, providing additional stability and helping to safeguard against unexpected financial strains.

Diversifying Revenue Streams

Relying heavily on a single customer, product, or service can be risky. If market conditions shift or your primary buyer decides to part ways, your enterprise could face significant challenges. Diversifying your revenue streams can help reduce this risk, build resilience and safeguard your business from sudden upheavals.

We can support you by offering tailored risk management solutions which sustain strategic growth and stability. We can help identify the specific coverage needed to protect new revenue streams and ventures. For instance, if you’re expanding into new markets or launching additional products, we can ensure you have appropriate insurance policies, such as product liability or market-specific coverage, to mitigate risks associated with these new endeavours. Additionally, we can advise on business interruption insurance and other safeguards that protect against unforeseen disruptions, ensuring that your business remains resilient even as you diversify and adapt to changing market conditions.

Business Continuity Planning

Effective planning is crucial to preventing business failure. To protect your business from unexpected disruptions, develop a detailed business continuity plan that identifies the key risks which could potentially disrupt your business, outlining how you’ll respond to them. Regularly test and revise your plan to ensure it remains fit for purpose as circumstances evolve.

Identifying Risks

For example, if you run a retail food outlet and rely on refrigeration, then a power outage could result in stock losses. Worse still, your customers could suffer from food poisoning. Or if you run an online business and your internet connection is down for hours or days, you risk losing business and customer goodwill. As well as physical risk to your business property, employees or clients, think about potential disruption to the market you operate in and less tangible things, such as risks to your business reputation.

At this point it would be helpful to tap into the experience of an insurance broker, a business mentor or your business networks. Every business is different and so are the risks they face. At Sage, we can work with you, to help identify your insurable risks. With this advice you can then make an informed decision to find the right cover to protect your business against the unexpected.

Managing Risks

The best time to consider your risk management strategy is when you draw up your business plan. You will need to revisit your risk strategy and update insurances as your business grows.

You can cost-effectively reduce some risks with simple actions, such as backing up your computer data, installing smoke alarms or providing your staff with safety training. Likewise, you could also consider outsourcing tasks, such as bookkeeping or computer networking, to reduce your risk of costly errors or malfunctions.

You can also buy protection against many business risks through insurance. Some insurances are required by law, such as workers’ compensation to cover injuries to your employees or professional indemnity for certain occupations. Others simply make good business sense, such as management liability.

Most people understand the need to insure their business assets, such as buildings, contents and motor vehicles for events such as fire, theft or damage. But business interruption insurance is arguably just as important. This helps cover any loss of revenue if you are prevented from trading due to an unforeseen event. It also provides cover where you cannot access your premises due to damage to adjoining premises. Even if you are working from home, you may need to consider public liability insurance and professional indemnity insurance. These offer protection if a client is injured on your home turf or takes legal action against you as a result of your professional advice. 

How will ESG risks impact my small business?

Environmental, social, and governance (ESG) strategies are quickly becoming essential for businesses, rather than just a nice-to-have. It’s not just big corporates – even the smallest enterprises should consider ESG risks and how to help mitigate them. It’s an important part of managing climate risks, meeting customer expectations, complying with the law and staying sustainable in the long term. So, what are the key ESG risks your small business faces and what steps can you take to help manage them?

• On the environmental front, climate change is forcing businesses of all shapes and sizes to plan for various contingencies, from changing customer tastes and community expectations to extreme weather events and supply chain disruption.

• Social risks encompass a range of issues, from workplace conditions and diversity, equity and inclusion practices to the impact your business has on its customers and the community at large. Businesses that perform poorly on the social front may find themselves working harder to reposition themselves with customers and the broader community.

• Meanwhile, governance risks refer to how your business operates and is managed, whether its business practices are ethical and transparent, and it complies with current regulations, locally and nationally.

  If you fail on this front, you may well find yourself facing fines, litigation and potential reputational damage.

We can help you address and manage ESG risks by offering tailored advice and coverage options that align with these evolving standards. For example, for governance-related challenges we may advise taking up a management liability insurance policy protecting against claims arising from corporate governance failures, including legal and regulatory actions, ensuring you have adequate coverage to deal with fines or penalties from regulatory non-compliance.

Enhancing Cybersecurity

In today’s landscape, the threat posed by hackers and cybercriminals is both real and escalating. The consequences of an attack can be severe, and in the extreme, a significant incident could be sufficient enough to put your small business out of business. Implementing stringent cyber security practices – robust passwords, multi-factor authentication, frequent back-ups and regular cyber awareness training – can reduce the risk of falling victim to cyberattacks and protect your business. 

Having a relationship with cyber security experts in advance is vital so you can act immediately when a cyber breach occurs. The right level of service for your business will depend on its nature and budget. Some businesses need access to 24/7 support. That support includes businesses for whom not being able to access their data for a period will have a significant revenue impact. For instance, let's say a restaurant is the subject of a ransomware attack on a Friday and cannot operate over the weekend. Around-the-clock cyber security support may be essential so it can trade during the busy weekend period. Other businesses may only require cyber security support during business hours. 

Cyber security incident response plans

The federal government has published a guide detailing the steps to follow when a cyber breach occurs. This is a good place to start designing your incident response plan. While the government's guide may be too comprehensive for most small businesses, it contains many of the essential elements every plan should include.

A one-page plan should be sufficient for most small businesses, including service provider contact numbers to call when a breach occurs. It may be appropriate for your plan to also include a protocol for notifying people in the business and under what circumstances, and if you hold a cyber insurance policy you should also notify your insurance company.

For instance, as a business owner, you may require immediate notification if the breach involves your customers' personal data. But you may not necessarily require notification simply if a virus is detected and it has not yet entered the system.

It's also often essential to outline the method of communication for different breaches. In the example above, the plan may state you should be notified by phone if customers' personal data is involved in the breach. But if a virus is detected, email or SMS notification may suffice. A traffic light system where different scenarios are classified red, amber and green may help determine what constitutes a high-risk and low-risk notification.

Cyber Insurance

Your small business might require a cyber insurance policy. We can help provide a risk assessment to identify potential vulnerabilities and recommend appropriate insurance coverage or adjustments to your current policy. We can help select the right coverage for your business needs, catering to a wide range of cyber threats, including data breaches, ransomware attacks, and other cyber incidents. This coverage is crucial for mitigating financial losses resulting from cyberattacks and ensuring that businesses can recover effectively.

Reviewing Insurance Coverage

62% of Small and Medium-sized Enterprises are unlikely to have the right insurance in place to protect their business.

As your business grows and evolves, your insurance coverage should too. If you’ve had the same insurance policies in place for a long time, there’s a good chance that your circumstances are not the same as when the policy was first taken out.

Regularly reviewing your policies, at least annually, ensures they are aligned with your current activities and risk profile. It’s good practice to not only review your policy at the time of renewal, but also when there are changes in your regular circumstances. This is essential to maintaining adequate coverage to protect your business in the event of an incident.

We can help you by

• Conducting regular reviews of insurance policies to ensure that coverage remains adequate as your business grows and changes. By evaluating your current risk profile and operational changes, we can then recommend necessary adjustments to your insurance policies, ensuring that they reflect your business's current activities and exposures.

• Identifying gaps in coverage and suggesting additional policies or modifications to existing ones, as your business undergoes changes such as expansion, new product lines, or shifts in operations.  

• Tailor insurance solutions to align with your unique risk profile, offering peace of mind that your coverage is not only comprehensive but also relevant to your current business environment.

Our Policy Review Process

A typical policy review will involve

1. Setting up the meeting

   We will set a meeting at a time and place convenient to you

2. During the meeting

   We can discuss any changes in your business and listen to any feedback you may have

3. After the meeting

   If there are any changes to your business, we can create an action plan and recommend adjustment to your policies to help ensure you are appropriately covered. We can then update your policies as required and provide you with certificate of currency to confirm your cover.

Why an early risk assessment is important for your business

Unfortunately, all too often arranging a risk assessment is often a task that businesses put off until just prior to renewal. A situation which usually does not result in the best outcome for either the business, the broker or the insurer. Aside from creating stress for business owners, a last-minute risk assessment with recommendations that cannot be acted upon before renewal can also result in unfavourable insurance terms.

We recognise that risk management in business isn’t always straightforward, and assessing the adequacy of your mitigation measures can be challenging. At Sage, our brokers have specialised knowledge of the small business sector and can help source appropriate and cost-effective insurance coverage that is tailored to meet your unique needs, protecting your enterprise now and into the future.

Being prepared for accidents and incidents is important – and so is having insurance in place to help your business recover, should the worst occur. For more information on managing business risks, contact your brokers at Sage. We’re ready to assist.