Three small business risks, and what to do about them

While many small businesses are working out how to grapple with a mixed outlook, there are also signs the economy is headed in the right direction. Against this backdrop, it’s essential for small businesses to take a prudent approach to risk management.

According to the results from the June 2025 NAB Business Survey economic conditions are stabilising, with business confidence rising for the third month in a row to June to reach the highest level in a year.

“The uptick in trend conditions is welcome given the softening trend through early 2025. The rebound in profitability is encouraging, particularly if sustained, as there was a risk that ongoing weakness in profitability would eventually flow through to weaker hiring and employment conditions,” said NAB’s head of Australian economics, Gareth Spence.

While there will always be day-to-day challenges, when you run a small business, there are some perennial risks you need to be prepared for. Here are the top three risks you should look to get on top of throughout all market cycles.

1. Business succession risk 

Without a well-defined succession plan, a business is vulnerable to significant operational disruption in the event of the owner’s illness or death.  

Let’s say for example two business partners jointly own a successful architecture firm. If one partner passes away unexpectedly, the surviving partner may wish to acquire the deceased partner’s share of the business but may not have the capital on hand to do so.

Buy/sell insurance is designed to address this risk by providing the necessary funds to support a buyout, helping ensure business continuity without placing unnecessary financial strain on the surviving partner. 

If this business had taken out buy/sell cover, funds may have been available to smoothly transfer ownership to the remaining partner, protecting the stability and continuity of the business.

This type of cover is one of the best ways to protect stakeholders and reassure both customers and employees of the ongoing viability of the business.

2. Key person risk

Many businesses rely on one important person. If they are absent, this can seriously impact revenue, customer confidence and brand stability.

Let’s say for example a software company relies heavily on its lead developer, who is also the key client contact for major accounts. If the developer passes away, or becomes unable to work, this can cause client uncertainty and put contracts at risk.

A well-structured key person insurance policy may provide a buffer payment to cover temporary replacement costs, maintain customer engagement and reassure staff and stakeholders while the business adapts.

3. Cash Flow Risk

Liquidity is one of the greatest financial risks for small businesses, especially in an environment of rising costs. Without appropriate insurance, a major unexpected event can rapidly erode working capital and place the business at risk.

Let’s say a growing wholesale distributor operates on tight margins and relies on strong cash flow to manage stock levels. A fire at its warehouse damages stock, disrupting operations and creating a potential cash flow shortfall. If the business has appropriate liability insurance, funds may be available to stabilise operations, preserving relationships with suppliers and clients.

Don’t be derailed by foreseeable risks 

Part of being in business is managing the unexpected. Insurance is one of the best ways to make sure that when the unforeseeable happens, the company can both thrive and survive. Contact your Steadfast broker today to find out more.

 

 

 

Important notice - Steadfast Group Limited ABN 98 073 659 677 and Steadfast Network Brokers

This article provides information rather than financial product or other advice. The content of this article, including any information contained in it, has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the information, taking these matters into account, before you act on any information. In particular, you should review the product disclosure statement for any product that the information relates to it before acquiring the product.

Information is current as at the date the article is written as specified within it but is subject to change. Steadfast Group Ltd and Steadfast Network Brokers make no representation as to the accuracy or completeness of the information. Various third parties have contributed to the production of this content. All information is subject to copyright and may not be reproduced without the prior written consent of Steadfast Group Limited.