While entrepreneurship is steadily growing, both in the United States and around the world, that doesn’t mean that it’s easy to run a successful business. The barriers to entry have never been lower, and yet businesses still struggle to survive.
Different types of businesses face different challenges, but these five threats affect all businesses across all industries.
Every single business in operation needs to be aware of any potential threats to its data security. We often think of this in terms of hackers, viruses, and malware, but these are not the only risks that data faces. In fact, much more common is data loss due to corrupt backups, equipment loss or theft, or simple lack of security due to lax password rules.
Companies must manage their data security by protecting customer information, but they also need to protect their own business data. Most businesses operate through a server, and maintaining the server’s security is often paramount. If your business isn’t sure how to do this at an appropriate level, consider hiring an IT professional or using one of the following server monitoring tools.
Cash Flow Concerns
According to a study by U.S. Banks, four out of five businesses that close do so because of cash flow problems. Companies might struggle because they are locked into longer than ideal invoice terms with businesses, because they overspent during startup, or because they did not have sufficient cash reserves to handle a downturn in the market.
To manage cash flow, businesses should:
- Invoice at the shortest terms possible for your industry. Offer a discount to companies that pay before the invoice is due.
- Study the history of your cash flow to know when you are safe to make capital investments, and when your cash needs to pay to keep the lights on.
- Work to maintain sufficient cash reserves that you don’t need to dip into your personal funds Iif the business hits a rough patch.
Natural Disaster Planning
According to FEMA, 40% of businesses that experience a disaster such as a flood or fire do not reopen. It only takes a few inches of water to inflict tens of thousands of dollars of damage. Few companies have cash reserves that can manage that kind of hit, and too many businesses are underinsured or entirely uninsured against that sort of damage. We have also seen that in the case of huge disasters, such as Hurricane Katrina, insurance companies went out of business, sometimes leaving their clients with little to no recourse.
Every business should have a disaster plan in place, complete with risk assessments, information on accessing insurance claims – if your building burns down, you won’t be able to get the claim information out of your desk – and what personnel will be responsible for what business duties. Having a solid plan in place can help your business be one of the 60% that survive.
If your IT person quit today, how would you remove their access to the business systems? If your payroll clerk calls out sick the day payroll needs to be processed, who takes over? If the CFO dies unexpectedly, what needs to happen?
Businesses need to remember that personnel changes and losses are not a question of if, but when. The trajectory of American work has changed since the baby boomers were starting their jobs. People do not tend to stick at companies for forty years and retire with a pension. Employees are always looking for a better compensation package, a more inspiring position, a chance to make more of a difference.
One important way to make sure that your company is protected against sudden changes in personnel is to have all of your procedures and methods documented. That way, if you need to step in and take care of payroll, you have a document in front of you that tells you what to do, who to contact, and how to move forward.
Businesses have two main methods to protect themselves; insurance and contracts. Many small businesses tend not to use either one to their advantage.
Using the Internet to search different contract clauses, ferret out their meanings, and determine if they can protect you better is something any business owner should be able to do on their own. If a contract involves IRS and thousands of dollars, having a lawyer look it over is, without question, the smartest decision.
Businesses also benefit from carrying insurance, from worker’s compensation insurance to liability insurance to property insurance. There are specialized insurance agents who work specifically with small entrepreneurs. Contact them and find out what you need.
It’s not a question of whether you can afford to; it’s a question of whether you can afford not to.
What do you see as the biggest threats facing small businesses in the modern marketplace?