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As a business owner, you took a risk by simply embarking on the path of entrepreneurship. And even as your business became more established and grew into a thriving enterprise, the risks never seemed to go away.
Risk management is not the most exciting part about being a business owner. However, its vital if you hope to one day reap the full benefits for a lifetime of hard work and sweat equity.
In MassMutual’s 2025 Business Owner Perspectives Study, owners said that the biggest obstacle to their business realizing its full value is the economy.
Of those surveyed, only 31 percent of business owners are “very confident” in their business’s ability to weather an economic downturn.1 In many cases, this may be a reality; but, unfortunately, it’s also out of your control. Instead, owners should focus on the risks that they can control, or as we call it, "the 6 Cs of Risk."
- Cash flow: Cash is king in any business. Yet only 58 percent of business owners say they have sufficient operating cash on hand for the business to run in an emergency for more than 6 months. Consider emphasizing cash flow over profits by developing a 6-month cash flow forecast, creating preferable receivable terms for your best customers, and prioritizing the payables of your critical suppliers.
- Credit: Nearly two-thirds of business owners leverage banks and commercial lenders to obtain financing for their business. Keep in mind that lenders won’t finance 100 percent of your business. They typically want owners to contribute at least 25 percent of the capital and want to see cash flow equal to 1.3x the debt.
- Centricity: Owner centricity is the number-one risk that exists in small businesses today. One-third of owners say their goal is to be “indispensable to the business.” Instead, business owners should be making themselves “redundant in the business.” But it’s not just the owner who often needs diversification. A successful business should also never be beholden to a single customer or supplier.
- Continuity: Two-thirds of business owners say it would take over a year to replace a key employee. Business owners need to have a plan in place should an unexpected loss of an owner or key employee occur. Key person life insurance and/or a buy-sell agreement can help keep a business afloat and ensure a seamless transition. However, only about half of business owners have an agreement in place.
- Competition: This may seem like something that’s out of your control. And while you can’t stop a similar business from trying to overtake your market share, you can know your industry and what it takes to be best in class. Remember, the end game is to monetize the business, so being the one that is most appealing to potential acquirers requires knowing your competition inside and out.
- Compliance: This one goes without saying. Having buttoned up financials and legal agreements and following external laws and regulations, including taxes, is table stakes for any small business.
That last point is important. Indeed, according to John Bartlett, founder of Brentwood Growth, a sale is most likely to fall apart in the financial due diligence phase.
“They primarily break down because there are discrepancies between what the seller represents his financials are and what the profit actually is,” Bartlett said. “It’s not because the seller is trying to do anything shady. It's because they’ve been sloppy in the way they’ve been running the financial records.”
Learning how to mitigate risk can be challenging, but a structured and planned approach can make a significant difference. And while types of risk may vary from business to business and industry to industry, you must decide how much risk you are prepared to take on in your business.
Talking to an expert can help. MassMutual financial professionals are experienced in working with business owners and many are trained and credentialed to meet your unique needs. Let us know if you’d like to talk with one.
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_______________________1 Online survey conducted by HawkPartners, fielded from January 27 to February 18, 2025. All respondents were from privately held businesses with at least $250,000 in revenue and fewer than 499 employees.
