Skip to Main Content

Risks Businesses Face During an Economic Downturn

Wednesday, August 16, 2023
Risks Businesses Face During an Economic Downturn

An economic downturn can be a serious threat to manufacturers that haven’t thoroughly evaluated their business model. While devising creative solutions to keep your business running despite unfavorable economic conditions, keep in mind that changes to your business can result in new liability exposure.

Supply Chain Risks

It’s no secret that the financial security of your business hinges on that of your partners, vendors and suppliers, and, in tough times, everyone is looking for a way to cut costs.

It’s important to avoid relying on the insurance coverage of your business partners to protect your assets or to protect you against third-party liability claims. In the event of financial insolvency, a business’s upstream partner organizations could eventually be held liable for claims filed against it. However, healthy, well-insured partner organizations are no substitute for comprehensive liability coverage for your business.

Ultimately, to protect your company, it may be a wise long-term investment to expand your coverage limits. While many businesses may opt to cut costs by lowering their coverage, dropping coverage could result in paying out of pocket for an expensive claim caused by suppliers’ shortcomings.

Verify Contracts

In a turbulent economic climate, it’s more important than ever to have thorough, seamless contracts. They should clearly outline the obligation of each party and discuss dispute resolution policies. That way, if something goes wrong, you can avoid a messy and expensive disagreement.

It’s rarely a good business decision to sign a contract hastily, but this is especially true in difficult economic times. Small companies who partner with larger companies are often strong-armed into making decisions they are not completely comfortable with. This makes it all the more important for organizations to look into all the risks and legal ramifications as it pertains to contracts.

Making Changes

In many cases, change is the best way of reacting to an economic crisis. It allows you to explore and exploit new customer bases and offer additional products or services. While expanding in either of these ways can revolutionize your business and keep you afloat in tough times, it could also expose you to additional liability.

When you experiment with new products or services, you will inevitably face a learning curve, which puts you at a larger risk of facing product liability claims. You may want to consider purchasing additional lines of coverage to protect yourself, as your surplus lines insurance policy may only cover claims arising from one particular product.

By the same token, shifting or expanding your client base may put you at risk of unexpected class action lawsuits. The same product or service may evoke disparate reactions in different sectors of the market. This is another instance in which it’s important to be covered for potential liabilities resulting from a change in your business.

Contact The Horton Group, Inc. today to be sure your plan for escaping an economic downturn unscathed does not backfire.

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.