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Small Business

Top Five Risks Consulting Firms Face 

The Baldwin Group
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Updated: March 25, 2025
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5 minute read

No matter if your business relies on a few chosen professionals or several thousand, all consulting firms face unique risks. Helping companies thrive and improve performance is no small task. Your advice could make a significant difference in the trajectory of a business. As a result, consulting firms sometimes find themselves under scrutiny when things don’t go as planned. In this post, we examine the climate of this industry, focusing on vulnerabilities consulting firms must navigate and what makes a risk insurable. 

Industry overview 

Every business, regardless of size or industry, will run into challenges at some point. Sometimes companies can solve these problems in-house. Other times, a resolution requires help from an outside resource — a consulting firm.  

Naturally, consulting firms face many challenges because businesses count on them as expert problem-solvers. Across multiple markets, consultants often have the know-how to increase productivity, boost morale, and provide industry-specific advice to executives.  

It’s not surprising, then, that more consulting firms are popping up across the globe. Over 700,000 exist worldwide, and the numbers are only growing. New technologies, remote work, and the creative process are all attractive features of the consulting industry.  

One arguable downfall is that it’s one of few markets that heavily depends on the human thought process without the help of artificial intelligence (AI) or robotics. What’s more, it’s labor-intensive and has a time-bound value. That said, let’s look at a few widespread risks that consulting firms face.  

Five risks for consulting firms 

While each industry manages vulnerabilities in its specialized way, consulting firms have little choice but to tackle the following risks head-on.  

1. Dissatisfied clients 

It’s a safe assumption that you can’t make everyone happy 100 percent of the time. However, client dissatisfaction has plenty of potential roots in the consulting industry, such as: 

  • Cost overruns 
  • Missed deadlines 
  • Miscommunication 
  • Misrepresentation 
  • Strategy or planning issues 
  • Financial limitations 
  • Failure to deliver on expectations 

Even with effective communication and clear agreements, unhappy clients are going to happen. How you recover from those unfortunate situations depends on your professional resilience.  

For example, do you have a game plan to manage reputational damage? Can you cover the financial burden of navigating a lawsuit? What kind of insurance coverage do you have to help you rebound? 

Professional liability insurance, otherwise known as errors and omissions (E&O), works to defend against lawsuits stemming from a perceived failure in your service that causes your client’s financial loss. This coverage helps to manage risk, no matter how meticulously you operate your consulting firm.  

2. Data Breaches 

As many as 58 percent of executives at small-to-medium-sized businesses (SMBs), including consulting firms, worry more about a data breach than a catastrophic event (i.e., flood, fire, or break in). A typical data breach generally costs around $4 million. 

Many consulting firms gain access to essential data to troubleshoot workflow or procedural issues. Naturally, there’s a significant amount of shared information. Plus, most consulting firms store client data on their computers.  

It’s crucial to use the best cybersecurity practices by thoroughly reviewing the security protocol of any technology service provider. Furthermore, train employees to support identity management and handle access credentials correctly.  

Cyber insurance can also help protect your business from the devastation of a data breach. This policy covers the immense legal fees that can pile up, cost of data restoration, income lost, and payroll spent. Cyber coverage is a valuable tool in crisis management. 

3. Unpredictable markets 

A delicate balance exists between finding new clients and nurturing current ones. For some consulting firms, an imbalance can surface, creating what’s known as the “famine or feast” mentality. Monitoring the dynamics of new versus current clients is a tricky feat — but necessary. 

Additionally, no one can predict a market’s climate from one moment to the next. From late-paying clients to unplanned costs to irregular business, unpredictability is a genuine concern. Such is the nature of running a business.  

General liability (GL) insurance helps to protect your consulting firm against lawsuits due to third-party financial loss. Plus, this coverage is a staple in risk management, covering some of the basic exposures of running a business.  

4. Property damage or loss 

Most consulting firms have a “secret sauce” in their back vault. In other words, consultants typically follow a particular strategy repeatedly, no matter what problems they’re trying to solve. It’s the firm’s unique and intangible creations borne from the human mind.  

This in-house knowledge is valuable and considered intellectual property (IP). Keep in mind that most of the firm’s employees have vowed not to share this priceless information with outsiders. Protecting this type of IP requires specialized IP insurance to guard against IP theft or infringement.  

However, consulting firms also face property theft regarding their office space, supplies, inventory, equipment, and more. Damage to tangible assets could cause a massive pause in business operations, so consulting firms avoid these setbacks fervently.  

Property insurance can help mitigate loss or damage or tangible property. This coverage is an indemnity policy, which means it will reimburse you for losses or damages that you face without any legal situation triggering the policy.  

5. Employee Issues 

Consulting firms rely solely on human thought processes to fuel their innovative engines. Therefore, people are crucial to the industry. However, this particular system is exceptionally vulnerable to human error and employee issues. And covering these vulnerabilities can be a demanding task. Your firm might face allegations of harassment, discrimination, retaliation, or wrongful termination. As you might have guessed, these lawsuits can produce costly legal fees, reputational damages, and added stress.  

Having employees comes with bonuses and challenges, of course. For example, workers’ compensation is required in most states. Plus, employment practices liability insurance (EPLI) is an added layer of protection from employee-related lawsuits, as well. 

Understanding the details of what coverage your company needs can be a confusing process. The Baldwin Group specializes in understanding the risks your industry faces to help ensure you have adequate protection. Connect with our team to walk through the process of finding the right policy for your needs.  

Ready to learn more about insurance for consulting firms? Connect with us today for a free quote


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