Kapadia LLP CPAs

Running a small business can be incredibly rewarding, but it comes with its fair share of risks. Whether you experience a natural disaster, a cyberattack or an unexpected financial downturn, being prepared makes all the difference. In this article, we’ll discuss how small businesses can effectively manage risk while staying resilient.

What is risk management? 

Risk management includes identifying, assessing and prioritizing all possible risks in order to minimize their impact. And for small businesses, this can mean anything from safeguarding against financial downturns to protecting business and customer data. The goal of risk management is to have strategies in place that will help guide you through any potential crises. 

Insurance and legal safeguards 

The first step in risk management is to make sure you have the right insurance coverage for your business. Here are several options to consider: 

• General liability insurance protects your business from claims of injury, negligence and property damage. If you interact with customers face to face, have access to their property, use advertising or work at third-party locations, this coverage would be good for your business.

• Professional liability insurance, also known as errors and omissions insurance (E&O), covers you if a customer sues for negligence or any mistakes employees may have made while providing professional services. If your business sells a professional service or gives advice, this option is for you. Some states legally require professional liability insurance, so check your state requirements.

• Business personal property insurance is essential for protecting your business property (e.g., equipment, furniture, fixtures, inventory) against risks such as fire, theft and natural disasters. No matter the industry, business personal property insurance can help protect your company.

• Cyber insurance helps cover the costs associated with data breaches and cyber incidents. With the increasing amounts of data businesses are storing, it’s important to get coverage that includes data breaches, cyberattacks and terrorist attacks.

Along with insurance, having strong legal safeguards in place is critical. To avoid legal troubles, ensure you have legal contracts that clearly define your business relationships and responsibilities, and verify that they comply with relevant laws and regulations.

Incident response plans

Unfortunately, there are always things that are out of our control; incidents can and do happen. Having an incident response plan (IRP) is essential for your business, as it outlines the steps you should take in the event of an emergency. IRPs should, at minimum, include the following five phases:

1. Preparation. Develop a policy that outlines how you’ll manage your incident response, what actions should be prioritized and who will handle the incident. Assemble an incident response team and document the roles and responsibilities of each team member.

2. Detection and analysis. Take steps to implement security safeguards, such as firewalls, intrusion detection and endpoint monitoring. This will help pinpoint vulnerabilities and detect and analyze a potential breach.

3. Containment, eradication and recovery. Use your security management tools to uncover what has been compromised so you can shut down or isolate impacted devices, address the root cause of the problem and restore your systems. Make sure you document the actions taken and collect evidence so you can use this in your future incident response process planning.

4. Post-incident activity. After any cybersecurity incident, hold a post-mortem meeting to discuss what happened and how your business responded, including what worked, what didn’t and what you can improve. If your business is subject to regulations that require reporting cyber incidents, make sure this is included in your post-incident activity.

5. Test incident response process. Conduct regular drills and simulation exercises to ensure your team is prepared to handle security events. You don’t want to wait until an incident occurs to test your incident response plan.

Stay resilient

Handling risk management can seem daunting, but with the right strategies in place, your small business can navigate through uncertainties with unwavering confidence. Stay prepared and informed and your business will not only survive—but thrive—through adversity.