The Unexpected Risks That Could Derail Your Small Business and How to Prepare
Last Updated on 25 February 2026
There are a lot of statistics that highlight the vulnerability of small businesses. The risks span everything from poor cash flow to a simple lack of momentum, and all of them lead small businesses to fall into the category that simply can’t stay afloat. And sometimes, it’s the unexpected risks that can derail an SME if they don’t prepare.
As it stands, the failure rates of small businesses are:
- 20%–21.5% of new businesses fail within the first year.
- 50% fail within five years.
- 65%–68% fail within 10 years.
All statistics from BPlan Writer.
Essentially, it’s difficult to be a business. Below, we’ll explore some of the unexpected risks that could derail your small business and how to prepare.
Poor Financial Planning
The leading reason small businesses fail is due to poor financial planning. FSB data tells us that 82% of businesses fail from cash flow troubles, and in the economic climate we’re in, it’s so easy to see why that would happen rather than collapsing after one dramatic event. And interestingly, the total bankruptcy filings in 2025 increased to 574,314, representing an 11% increase from 517,308 in 2024.
Some of the common poor financial planning mistakes small businesses make include:
- Overestimating revenue
- Underestimating costs
- Lack of emergency buffer
- Over-reliance on one client or revenue stream
- Failure to plan for downtime
There are numerous ways to prepare, such as not overspending, finding the necessary upfront capital, using cloud-based accounting software for real-time tracking, etc.
Not Having Business Insurance
There are a few reasons small businesses don’t have business insurance, and one of them is the “it won’t happen to me” attitude, with businesses opting to save on the cost of the monthly premium with the view that it really won’t happen to them.
According to some of the latest data from Next Insurance, 29% of small businesses have absolutely no business insurance, and the potential risks of that can spiral out of control. Uninsured losses are often business-ending—we’re talking hundreds of thousands of dollars for major fire damage, serious injury claims, slip and trip claims, and our list could go on.
It could be as simple as getting general liability insurance. General liability insurance for business isn’t necessarily a massive monthly expense, and policies cover:
- Slip-and-fall injuries
- Property damage
- Legal fees & defense costs
- Medical payments
- Other common business accidents
It definitely pays to be covered, and it pays a lot more not to be. And don’t forget that underinsurance is as dangerous as no insurance. Businesses should always disclose absolutely everything they need to cover.
Other policies to consider include:
- Public liability
- Employers’ liability
- Professional indemnity
- Business interruption
- Equipment breakdown
- Legal expenses cover
Legal and Regulatory Risks
Compliance failures are becoming so common, especially with employment law mistakes such as wrongful dismissal and discrimination claims, with almost two-thirds or more of wrongful termination lawsuits settling out of court. And that’s just legal troubles around employees; regulatory risks are so much higher, with fines and investigations damaging finances and reputation.
The issue for small businesses is that they might not necessarily understand the gravity of legal and regulatory troubles, and even if they do, they’re constantly changing. And if breaches of either involve customers, especially surrounding growing issues like data protection violations or neglected licensing obligations, the consequence is almost always costly enough to derail a small business.
To protect themselves, small businesses can actively monitor and follow legal and regulatory risks.
Cyber Threats
This is definitely an interesting one to explore now—cyber threats have never been a more relevant issue that businesses and consumers are battling, with 40-72% of small businesses and over 50% of all organizations having experienced a cyberattack or security incident in the past year. Cyberthreats can include:
- Ransomware attacks
- Phishing, vishing, or smishing attacks (62%)
- Invoice and payment fraud (37%)
- Identity theft (32%)
- Insider threat or employee-led fraud (20%)
- Romance or impersonation scams (17%)
- Investment or cryptocurrency fraud (17%)
And then there’s everything else in between. To protect themselves, businesses can:
- Implement a 3-2-1 backup strategy.
- Use multi-factor authentication (MFA).
- Do regular staff training
- Consistently update
Some of these might not necessarily be unexpected, but they’re all risks that small businesses should know about. Considering that statistics show that most businesses fail within the first few years, understanding all the risks and how to protect from them can keep a small business on track.