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8 Ways to Lower Risk as a Small Business

The risks that come along with owning and operating a business are factors that every business owner takes into account, regardless of the type of business that they own.  This is especially true if you own a small business. Although every business faces some degree of risk, small businesses are generally much more sensitive to risk. So, the best thing that you can do as a small business owner is to try to lower your exposure to risk. Check out eight ways to effectively lower risk as a small business owner. 

1. Prioritize Safety 

Establishing clear and effective safety protocols is crucial when it comes to running a small business. By implementing strong safety protocols, you can minimize risk exposure to both your employees and to your business as a whole. The potential for employee injuries is vastly reduced when safety protocols are followed by every individual involved in your business.

Prioritizing safety also goes hand in hand with lowering any potential risk for lost or damaged inventory. One way to minimize risk to your business’s inventory is by ensuring that you have security measures in place, such as security cameras. It is also critical that you have other safety systems in place, such as properly working security alarms, smoke detectors, and sprinklers. 

2. Purchase Business Insurance

Although prioritizing safety is one way to reduce risk as a small business, doing so does not mean that your business is completely immune to risk. If something does happen to your business’s inventory, equipment, or employees, having business insurance can significantly reduce the impact that those incidents have on the wellbeing of your business. 

While business insurance does not necessarily lower risk, it does create a substantial financial backing for your small business in the event that something does happen. It is impossible to avoid all risks as a small business. So, the next best thing that you can do is ensure that you have good insurance to keep your business afloat regardless of any setbacks.

3. Diversify Your Goods and Services

One challenge that many small businesses face is a lack of diversity in the goods and services that they offer. Ideally, you should avoid relying solely on one or two goods or services as a small business owner. If the demand for those products or services suddenly decreases, so will your earnings.

The same could happen if you only rely on steady income from one client.  Similar to how you should diversify the goods and services that you offer, you should also build up a solid network of clients with whom you work. In doing so, you will diversify your revenue streams and significantly reduce the risks that you may otherwise face as a small business owner.

4. Strive to Maintain a Good Reputation 

Another aspect of running a small business that is essential to lowering risk is maintaining a good reputation with the clients and customers that you serve. The importance of maintaining a good reputation should not be overlooked, especially when it comes to your reputation among current and potential customers. Prospective customers are more likely to buy into the value of your business’s products and services when your business maintains its good reputation with your current customers.

Customers are the backbone of any business. Without them, your business simply won’t exist. One way to help your business maintain its good reputation is by ensuring that you provide your customers with high-quality products and services. In in cases where products are defective or potentially even recalled, having sufficient policies and procedures in place to address those issues is equally as important. 

A happy customer is much more likely to leave you a positive review at the end of the day, and every business needs positive reviews to help expand their reach and gain new customers. Afterall, most prospective customers begin their analysis of a business by reading the reviews that already exist. By building up and maintaining a good reputation from the beginning, you have the power to establish strong relationships with your current clients and build more positive relationships with prospective clients overtime.

5. Plan for Any Outcome

At the end of the day, having a plan for any outcome is one of the most important things you can do as a small business owner. Nothing is guaranteed—your inventory, your equipment, or even your employees. You should always expect the unexpected as a small business owner. When there is a plan in plan for any outcome—good or bad—your small business will be faced with a much lower degree of risk overall. 

6. Control Your Growth

As a small business, it is critical that you do not outgrow yourself and your resources too quickly. Although it may be tempting to try to scale up your business as soon as possible, doing so increases the potential for your business to face greater risks later. It is important to ensure that your small business can sustainably support the demand that exists for your products and services. 

Beyond the products and services that you offer, controlling your growth also involves properly training your employees. Your small business is more likely to grow over time if you hire and train employees that are well equipped to handle the demands of the job as your business grows and changes. By setting high, yet realistic, goals for yourself and your employees, you will maintain greater control of the quality of products and services that you offer in the long run. In turn, you will maintain control over your small business’ growth and success long term.

7. Learn from Peers

One method to lower risk for your small business that often goes overlooked is learning from the people around you. There are lots of ways to connect with the entrepreneurs and business leaders around you. Perhaps you decide to form a group of local small business owners that you can talk to and learn from. Or maybe you decide to find a community of small business owners online to connect with. Regardless of how you connect with other small business owners, doing so can provide you with valuable insights as to how you can lower risk for your small business.

It can save you a lot of time as a small business owner to leverage the knowledge you’re your peers have gained from the risks and challenges that they have already faced themselves. You can ask about what risks your peers have experienced and discuss how they assessed and managed those risks.

8. Create a Financial Safety Net

Just as people reduce risk in their own life by establishing savings accounts, or “rainy day funds,” every small business owner should have a financial safety net in place. It is a good practice to have anywhere from three to six months’ worth of operating expenses set aside at any given time. By creating a financial safety net of this size, your small business will be less impacted by any emergency circumstances that may arise. 

If you are in the early stages of building up a financial safety net for your small business, consider saving a percentage of your profits on a monthly basis. For example, some small businesses save up to 10% of their profits every month to contribute toward their financial safety net. This helps the small business withstand any challenge that it may have to endure.


As a small business owner, you will inevitably face a variety of risks, challenges, and setbacks. Fortunately, there are several strategies that you can implement immediately to lower risk to your small business. With the right systems in place, you can gain control over the potential risks that your business may face, while increasing the long-term stability of your business. Ultimately, thinking ahead and being prepared for the unexpected are crucial to the success and wellbeing of any small business. 

Melissa Leyba on Linkedin
Melissa Leyba
Melissa Leyba is an educator and freelance content writer based in Los Angeles, California. She has a passion for learning and sharing her knowledge on a variety of topics, including business, education, and international relations. In her free time, she enjoys making music and traveling.

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Melissa Leyba is an educator and freelance content writer based in Los Angeles, California. She has a passion for learning and sharing her knowledge on a variety of topics, including business, education, and international relations. In her free time, she enjoys making music and traveling.

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