5 common business risks and how to prepare for them

By Allstate

Last updated: August 2023

The rewards of small business ownership can come with their share of risks. Some accidents, cyber incidents or theft, for example, can lead to lost revenue, legal liabilities and big headaches. Fortunately, you can help protect your company by identifying potential risks and taking steps to prepare for them. Here's a look at five business risks and how you can help minimize the consequences.

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Risk #1: Damage to your business or its contents

What would happen if your business's property — its physical location and its contents — were damaged or destroyed by fire, severe weather, a natural disaster or vandalism? Could you afford to make repairs or rebuild?

  • How to prepare your business: Talk to your insurance provider about buying a business owners insurance policy to help protect your business. The property coverage in a business owners policy may help pay to repair your business's physical location if it's damaged by a covered event, such as a fire. The property coverage also helps pay to replace business property that is stolen or damaged by a covered event. Additionally, create an inventory of your company's property, such as furniture and office supplies, and update it annually so you have a record if items need to be replaced.

Risk #2: Business interruption

Many small business owners don't think about what they'd do if an event or a disaster, such as a tornado or fire, makes their business location uninhabitable. It's important to have a plan in place in case you're forced to temporarily relocate or close while repairs are made.

  • How to prepare your business: Consider purchasing business interruption insurance, which is typically part of a business owners insurance policy. This coverage may help replace lost business income or pay for extra expenses (such as rent for a temporary location) if you can't operate due to a covered event. Covered events typically include damages to your business’s physical location caused by fire, wind, lightning, theft or falling objects.

Risk #3: Injuries at your business

If a customer or visitor is injured at your business, you may be liable for their injuries. Defending yourself in court can be expensive.

  • How to prepare your business: Consider commercial general liability (CGL) coverage for your business. Typically included in a business owners policy, this may help protect you if someone is injured at your business and sues. For example, if an employee accidentally hurts someone while performing their work, this coverage offers protection for related lawsuits including the injured party's medical expenses, the business's court costs and/or legal fees.

Risk #4: Professional liability

If your business provides services or advice to clients, your company may face the risk of lawsuits alleging negligence or inaccurate advice. Even defending against frivolous claims can be expensive.

  • How to prepare your business: Having clearly written contracts defining the services and advice you will provide, and well-defined scopes of work help limit your liability risks. You may want to consider investing in professional liability insurance, sometimes referred to as errors and omissions insurance or miscellaneous professional liability, to help protect yourself against lawsuits from clients. If a client holds you responsible for any losses they incurred based on the advice or services that your business supplied, this coverage may help protect you. It may also help cover legal fees or other costs stemming from judgments or settlements against you.

Risk #5: Cyber incidents

In today's digital world, businesses may be at risk for having their company data stolen.

  • How to prepare your business: Invest in cyber insurance, which helps cover costs of recovering from and responding to cyber attacks. Also train employees on cyber security, use strong passwords, and keep software updated. Allstate offers the CyberSuite product to your business insurance policy, which includes data compromise coverage to help protect small businesses against data breaches. Data compromise coverage, sometimes called data breach liability insurance, can help your business recover after a data breach and ensure your business is compliant with state laws. It also helps pay for things like legal fees or credit monitoring for customers, if needed.

Having the right insurance coverage can help protect your company against common business risks. If you have questions about what kind of coverage is right for your business, talk to your insurance provider.