Security risk assessment: How to protect your small business from cybercrime

1Identify assets and resources

To protect itself, a business needs to know exactly what it’s protecting. Asset identification is the first step in a risk assessment, helping you pinpoint valuable resources — like data, physical technology, and intellectual property — and determine where they’re stored.

This process doesn’t only entail making a list. You’re classifying data sets, understanding their level of risk, and making sure the right security measures are in place. Plus, knowing who’s responsible for each asset can prevent security gaps and accountability issues down the line.

2Threat identification

The next step is figuring out what you’re protecting assets against. Threat identification is a major part of a security risk assessment, helping businesses map out potential vulnerabilities and the many ways cybercriminals could try to break in.

This isn’t just about digital threats — business security also includes risks to physical infrastructure, internal data leaks, and even insider threats. A strong cyber threat protection strategy considers both external hackers and internal risks, ensuring security gaps are addressed before they can be exploited.

Some industries are bigger targets than others. For the last few years, cyberattacks have affected manufacturing and finance companies more than any other sector.¹ Similarly, the cost of security damage can also be higher for some industries — one report found that breaches affecting healthcare businesses are the most expensive, costing an average of $10.93 million per business.³

3Vulnerability assessment

Cybersecurity vulnerabilities make it easy for cybercriminals to exploit weaknesses in a business’s defenses. But a vulnerability assessment helps businesses get ahead of these risks by systematically identifying and evaluating weak points in their security infrastructure.

Common vulnerabilities include:

• Outdated or unpatched software: Older systems and applications often contain well-known security flaws that hackers can easily exploit.
• Weak passwords and lack of multi-factor authentication (MFA): Simple or reused passwords make it easy for attackers to gain unauthorized access.
• Unsecured networks: Poorly configured Wi-Fi, exposed cloud environments, and open remote access ports can create entry points for cybercriminals.
• Misconfigured firewalls and security settings: Gaps in firewall rules or improperly set access controls can leave systems vulnerable.
• Lack of employee security training: Human error remains one of the biggest cybersecurity threats. Small businesses are especially at risk here — they account for 43% of cyberattacks each year, and those with fewer than 250 employees are especially vulnerable to email threats like phishing, spam, and malware.⁴
• Overly broad user access permissions: Employees with unnecessary access to sensitive data increase the risk of accidental leaks or insider threats.
• Unmonitored third-party integrations: External vendors and software tools can introduce vulnerabilities if not properly vetted or secured.

4Risk analysis

Not all security threats are created equal. Some vulnerabilities pose a small inconvenience, while others could shut down operations entirely. Here’s where risk analysis comes in — it’s a step where you determine which threats are the most dangerous, how often they’re likely to occur, and what kind of damage they could cause.

A thorough risk analysis outlines various threat scenarios, evaluating the probability, severity, and impact of each one. For example, a ransomware attack could lead to financial losses and downtime, while a data breach could result in regulatory fines and the loss of customer trust.

By breaking down these risks in a risk assessment matrix, businesses can prioritize the most pressing threats and allocate resources to where they’re most needed.

5Risk mitigation strategies

Once businesses complete a risk analysis, the next step is implementing risk mitigation strategies to minimize threats. Each threat should be paired with appropriate security controls to improve data protection. This might include:

• Strengthening network security: Firewalls, MFA, and encryption are cybersecurity basics, but businesses can take it further by using intrusion detection systems (IDS) to spot suspicious activity before it becomes a full-blown attack.
• Implementing security controls: Not every employee needs access to sensitive data. Role-based access control (RBAC) ensures that only the right people can view or modify critical information, making it much harder for hackers (or careless mistakes) to compromise security.
• Training staff on cyber threats: Phishing attacks are the easiest way for hackers to break in — just one employee clicking a bad link can lead to a disaster. Running phishing simulations teaches staff to recognize fake emails before they fall for them.
• Regularly patching software: Hackers love outdated software because it’s full of known vulnerabilities. Businesses should turn on automatic security updates and regularly patch systems to stay ahead of potential exploits.
• Developing an incident response plan: When a breach happens, every second counts. Assigning response roles, setting up emergency communication channels, and running tabletop drills help teams react fast and minimize damage.

PayPal Business offers risk assessment tools powered by risk intelligence and machine learning to help small businesses detect and prevent payment fraud. Using these resources can add an extra layer of security against common cyber threats.

6Documentation and reporting

Keeping thorough risk assessment documentation ensures that businesses refine their security strategies year after year.

That said, a well-structured security report should go beyond listing risks. It should outline exactly how you plan to protect yourself from cyber threats, including specific risk mitigation steps, a timeline for implementation, and assigned stakeholders.

The result of robust cybersecurity reporting? Businesses stay accountable, secure budgets for security improvements, and demonstrate compliance with industry regulations.