This information is derived from Rehmann’s Private Client Advisory (PCA) experience, a uniquely tax-aware approach to growing and protecting wealth through a team of specialists curated for each PCA client’s needs.
Owning and running a business naturally involves risk — some you anticipate, others you don’t. From legal challenges and regulatory changes to intellectual property and reputational threats, the risks are varied and frequently unavoidable. Every business, regardless of size or industry, faces risks that evolve with each stage of your business’s growth.
Newly established businesses are likely focused on gaining market share and working toward profitability. In contrast, large, established corporations are geared toward delivering consistent growth for its shareholders while managing a wide range of assets … two very different yet common scenarios.
No matter where your business is in its life cycle, doing what you can to mitigate risk is essential for its long-term success — and yours. My motivation as an advisor is to bring my clients balance, clarity, and peace of mind, no matter which stage of life, business ownership, or transition they’re in.
And after years of working with business owners who lead companies of all sizes, I can tell you without a doubt that the strongest possible offense and defense comes down to two essential keys: awareness and preparation. With proper and consistent risk awareness and preparation, you can stay focused on what matters most: growing and protecting your business, your equity in it, and your personal assets to the best of your ability.
To help you identify the most significant risks to your business as it evolves, I’ll walk you through the critical challenges you’ll likely face at each stage of your business’s life cycle — and explain how you can protect your business and your personal assets.
Risks at Various Business Stages
Businesses face unique risks regardless of their size or phase of growth. However, depending on the stage your business finds itself in, you’ll need to be mindful of specific risks that often affect businesses at different points in their journey. Here’s a look at a few risk exposures you need to focus on across the various stages.
Foundational Stage
Small businesses are the backbone of our economy. According to the latest data of the U.S. Small Business Administration, 99.9 % of the businesses in the United States in 2024 are small businesses (defined as companies that employ 500 or fewer people). And those 34,752,434 small businesses employ 45.9 % of American workers.
Because small businesses create nearly half the jobs in the country, their success plays a key role in strengthening communities. They serve as a trusted neighbor that provides essential services, typically operating with close-knit teams in a single location, where each employee’s role is critical to its function. As you well know from leading your own, these businesses are fueled by the owner’s dedication and personal investment.
At no time, perhaps, is your dedication and personal investment more pivotal than at the foundational stage. If your business is just starting out, you’ll encounter risks that can significantly impact your business simply because it’s most vulnerable. These include:
- Financial Mismanagement: Many startups fail due to poor financial planning and management. Proper expense tracking, budgeting, and revenue projections are critical. Unsure your financials are accurate or giving you the information you need to budget and project revenue properly? Ask yourself the questions (and find options for fixing issues) here
- Limited Team Size: The risk of employee loss and your ability to attract talent can be a significant challenge at any time in your business, but especially early on. That’s when you likely have the fewest employees. Every one is critical to operations and many perform more than one role (e.g., your office manager is also your bookkeeper; your inventory manager is also your sales rep). To keep your operations up and running with a concentrated group of employees, intentional efforts to attract them to your company and keep them engaged is your best bet.
- No Line of Separation Between Personal and Business Assets: Failing to separate your personal and business assets can jeopardize your finances in the event of a lawsuit or other business dispute. This problem is more likely to impact fresh entrepreneurs, small business owners, and the like; this group often uses personal funds to launch and operate their ventures, increasing their exposure to risk and potential liability. Once your business generates sustainable revenue, it can fund itself, but until then, taking decisive action to protect your assets is key. Minimizing personal liability in this stage of your business’s life cycle is about creating clear lines of delineation between your business and personal assets. Efforts here can include establishing your business as a limited liability company (LLC), purchasing business insurance, and creating separate bank accounts for your personal and business assets. All of these can keep potential creditors and lawsuits at bay if they come for your livelihood.
Growth Stage
Once your business has attained sustainable profitability, your next venture is to invest in its growth; offering your employees professional development and training, purchasing new machinery, or expanding the size of your team are all common ways to support and achieve growth.
Businesses that can do one or more of the above are no longer merely surviving – they are thriving.
However, this growth brings with it a set of new obstacles that can hinder your goals. These include:
- Cyber and Physical Security Threats: All businesses are a target for cybercriminals, but growing businesses are a particularly prime target due to their growing revenues and the chance that they have yet to invest in cybersecurity measures. Establishing cybersecurity protections and protocols can ensure your business’s momentum isn’t stalled due to a costly cyberattack. Click here for an easy-to-understand guide to cybersecurity essentials.
- Policies, Procedures, and Internal Controls: As businesses grow, so does the number of people touching each business process and the need for consistency. Along with consistent procedures, enacting internal controls like segregation of duties and ensuring proper checks and balances can do a lot to prevent fraud. (Find out where to focus and 5 steps you can take to improve internal controls, here.)
- Spending to Grow: While coined as “making investment in the company,” having to spend valuable resources in the pursuit of growth is a decision that may be hard for some to make. But if you have a solid understanding of projected revenue, cash flow, and liquidity, you’ll not only be able to make better informed decisions but also know you haven’t left opportunity on the table.
- Vendor-Related Risks: Nearly every business relies on outside businesses for goods and services, and vendors can also pose risks for you. For example, if a vendor supplies you with a faulty product that harms your customers, your business can face legal ramifications for a mistake you weren’t aware of or responsible for. Performing due diligence on prospective vendors can identify issues that could sway your decision to work with one vendor over another.
Enterprise Stage
If you’re at the enterprise stage, your business is stable and has chiseled its position in the market. You have strong brand recognition and have carved out your market share, increasing revenue year over year. But even if your business has achieved this level of success, it isn’t free from risks. Consider these enterprise-stage risks:
- Reputational damage: Damage in the public eye comes in many forms, especially for a big business. No doubt you’ve seen or heard news stories about an otherwise respectable business facing one of these nightmares: a poor customer experience going viral on social media, embezzlement or other inappropriate behavior from a high-ranking employee, or a cyberattack that compromised customer data. Ideally, you’ll have measures in place to prevent events like these from happening in the first place. Nevertheless, put some proactive efforts in place just in case. Some ideas: Work to actively build a positive brand image in the marketplace. Monitor your business’s online presence (and online chatter about it) for potential PR issues. And develop a crisis communications plan now. For example, how will you handle social channels and your website? Media inquiries? Who will be your spokesperson? Who will decide on the messaging to the media, the general public, and your customers? Plan for the worst now, so if the worst happens later, you can react quickly, as well as thoughtfully, to minimize reputational damage.
- Intellectual property disputes: These conflicts can lead to costly legal battles as others compete for your market share or work to erode your competitive advantage. When dealing with, or working to prevent a dispute, having a seasoned legal team will help you navigate these conflicts more easily and, often, more successfully than you could alone.
- Changes in regulatory environment: New federal or state government regulations can require that your business make significant changes, reducing the resources you can allocate toward growth opportunities. Who is actively monitoring and communicating these changes, so your business can respond and remain compliant.
- Cybersecurity threats: Even well-protected companies are vulnerable. By this stage in your company, you’ve likely put in place protective measures, policies, and protocols. However, breaches can still occur due to employee errors, such as clicking on a malicious link in a phishing email. Frequent awareness training for employees, consistent review of your risk mitigation measures, and consideration of cyber insurance is crucial.
Addressing Risk and Protecting Assets Within Your Business
As your business grows, so do the challenges of mitigating risk. Half of the battle to address risk is to minimize the chances of them impacting your business in the first place, which is why taking a proactive approach is key.
Regardless of the stage your business is in, there are several actions you can and should take.
What You Can Do to Reduce Risk for Your Business
- Annual Risk Review: Regularly assessing potential risks allows you to have a fresh view of potential risks as your business evolves. It will also bring to light new risks that previously wouldn’t have applied to your business.
- Seek Expert Guidance: There are not many areas of your life where you DON’T rely on the advice of experts. Doctors, lawyers, and academics all possess deep, specific expertise and experience in specialized areas. We seek them out to get the right answers to the specific, most consequential questions in our personal lives. That same approach should apply to your business. Having an integrated team of business advisors — each of whom, like doctors, lawyers, and educators, specialize and have years of experience in a distinct area within their discipline — is the ideal way to get sound advice and solutions that meet your unique needs.
- Prepare for the Future … Today: After decades of helping hundreds of clients limit their exposure to risk, I know this to be true: The best time to create a plan is before it’s needed. Planning for the future not only allows you to be ready WHEN unforeseen life events occur; it helps you maintain stability during un-stable times — the critical difference that keeps a challenge from becoming a catastrophe.
As you begin developing your business transition and succession plan, I encourage you to devote time and thought to identifying and mitigating the risks you and your business face now and in the future. I hope this article gives you a solid foundation to start, as well as the motivation to continue. Your future self (and business) will thank you.
About the Author: David Ladomer is Principal within Rehmann Wealth, a Registered Investment Advisor, managing over $4 billion in assets under management. In his role, he provides holistic wealth management services to high-net worth individuals and families. Dave brings a diverse background, with a specialty in managing personal balance sheets that include closely held business, and generational wealth. Dave is a Certified Public Accountant (CPA), a Certified Financial Planner TM (CFP®), and a Certified Investment Management Analyst TM (CIMA®).
Securities offered through Rehmann Financial Network, LLC, member FINRA/SIPC. Investment advisory services offered through Rehmann Wealth, a Registered Investment Advisor.
