Mitigating risk is a constant challenge for small business owners. While survival rates for small businesses vary by industry, the threat of failure is often looming overhead. Some risks can easily take business owners by surprise, such as a natural disaster or an unexpected spike in inflation. Others are more common and, to some degree, controllable. The first step to avoiding business failure is identifying these key business risks. Understanding the risks small businesses typically face will make them easier to identify and address, improving your ability to avoid business failure.

small business failure

Hiring the Wrong Candidate

Mistakes in hiring are one of the key business risks and can be crippling in a number of ways. First of all, hiring the wrong candidate will cause you to waste valuable resources. The payroll expenses and all the time spent training are lost once that individual exits your organization and you have to begin screening new applicants.

 And it doesn’t end there. Depending on the conditions under which they left and your local labor laws, you could also end up paying unemployment benefits. Other potential risks go beyond turnover costs. Hiring the wrong candidate can disrupt company culture, decrease production, potentially cause a loss of clientele and revenue.  

Overlooking Reputation Management

Underestimating the importance of a good business reputation is another one of the key business risks. As a business owner, it’s crucial to be aware of what is being said about your company online. Especially in this age of social media, not monitoring and responding to reviews can have a negative impact on your business. It is also important to ask customers for reviews.


In their recent blog reviewing 2019 online review statistics, QualtricsXM clearly demonstrated just how important online reviews and articles are for maintaining a good business reputation. Some of the most enlightening statistics are that 93% of consumers say online reviews impact their purchasing decisions and 89% of consumers read businesses’ responses to reviews. Additionally, businesses risk losing as many as 22% of customers when just one negative article is found by consumers considering purchasing their product. That percentage increases significantly to 59.2% if three negative articles pop up in a search query.

Underestimating the Competition

Not keeping your eye on the ball when it comes to your competition is among the most common key business risks. It is essential to understand your competition and never let your success fool you into believing they don’t matter. For every business move you make, whether it be a new product line or increasing your marketing efforts, you need to expect a competitive response. You need to anticipate what that response will be and have a plan in place to compensate for it.

Also, when developing a new business idea, keep in mind that someone among your competition may have already thought of it. Before investing too many of your resources into the idea, do some research. It’s possible your idea has already been put to the test by your competition and it failed. The takeaway is that you could identify where they went wrong and figure out how to circumvent it or simply pass on what could end up as a costly mistake.

Inadequate Cyber Security

Cyber threats are on the rise as hackers are constantly honing their skills and becoming more sophisticated. On top of that, businesses are collecting more personal data from their customers. Without implementing the proper cyber security systems, this combination could be a cocktail for disaster. A single security breach could cause the disruption of daily operations, diminish customer confidence, brand erosion and ultimately cause a business to close its doors permanently.

risk management

Mitigating Key Business Risks

The business risks discussed are just a few of the many small businesses may face. However, these are some of the risks that it is possible to minimize with proper risk management. Implementing risk management is a vital investment in the success of your business. However, it can initially put a drain on your working capital leaving your business vulnerable.

CapFlow Funding Group offers working capital solutions to quickly provide the funding you need to grow and protect your business. We work with business owners across various industries to find the best working capital solutions to their businesses on track. We are dedicated to providing the short-term working capital you need. Specializing in invoice factoring, we also offer merchant cash advances and work with trusted partners to make additional funding opportunities available. Our team will work tirelessly to see you through to success. Contact us today!