Companies with fewer than 1,000 employees are nearly twice as likely to be attacked electronically.

By Sam Higginbotham

Thanks to technology, businesses, suppliers and customers are more connected today than ever before. Digital storage of customer information, cloud computing, social media and other innovations offer entrepreneurs substantial cost savings and increases in efficiency. However, with these advantages come increased risks. According to the Center for Strategic and International Studies, a nonprofit research and analysis organization, electronic criminals stole roughly $100 billion from companies and individuals across the United States last year. Due to the threat these criminals pose to businesses, many insurance providers have begun offering coverage for losses sustained during a cyber attack.

Digital Threat Protection

The importance of this new insurance category to franchisees and small franchisors cannot be overstated because they often don’t have the resources, training or staff to provide complete protection from digital threats. Criminals exploit this reality and companies with fewer than 1,000 employees are nearly twice as likely to be attacked electronically, according to a 2014 Verizon Data Breach Report. Despite having security systems in place and trained security professionals on staff, several high-profile data breaches have occurred at major banks and retailers.  Small-business owners can’t afford to ignore the threat of these kinds of attacks. If victimized by an electronic criminal, franchise businesses can sustain substantial damage. Vital customer and employee records could be lost forever.  If these attacks actually disable a location’s computer systems, they could even force closure of the business while it reconstitutes itself. These damages can go far beyond disruptions in service and loss of data, as businesses are often held legally and financially liable for any costs incurred by credit card companies and customers due to lack of adequate security. Fortunately, market forces have responded to the growing demand for increased protection from cyber threats. A recent report from the law firm McGuireWoods concluded that roughly 25 insurance companies offer some form of first or third-party insurance for cyber losses, with 31 percent of all U.S. companies taking advantage of these options. First-party insurance covers costs sustained as a direct result of an attack, such as business interruption, extortion and data loss.  Third-party insurance covers liability that a business might have to other parties, including customers, regulators and suppliers after a cyber incident. International Franchise Association Exec. Vice Pres. of Government Relations and Public Policy Robert Cresanti praised these business owners for taking charge of their own cyber security.  “Entrepreneurs are well-known for their resourcefulness. Every day brings new challenges to their doorstep. Rising labor prices, increased regulation and the general risks that accompany going into business, already threaten their hard work to provide high-quality goods and services to their customers. Just as the threat of fires, floods and legal liability are facts of life, so is the threat of electronic crime.” Thanks to public and private support for new educational efforts, there are substantial resources available to franchise small-business owners looking to enhance their own cyber security. The National Cyber Security Alliance, which recently announced a partnership with IFA, has released several useful guides designed for small businesses. These tools, along with a wealth of other information, can be found at www.staysafeonline.org.

Sam Higginbotham is special projects coordinator for the International Franchise Association. Find him at fransocial.franchise.org.