The Real Cost of a Data Breach for Small Businesses & How to Prevent

A data breach occurs when unauthorized individuals gain access to sensitive or private information, often by exploiting vulnerabilities in systems or bypassing security controls. A single incident can disrupt operations, expose customer data, and quickly erode trust that took years to build.

These breaches are particularly damaging for small businesses, which often lack the resources to respond quickly or absorb the financial impact. Recovery can take months or longer, with lasting effects on revenue, operations, and customer relationships. Keep reading to learn how these breaches are best avoided and why proactive cybersecurity is worth the investment. 

Why cybersecurity is critical for small businesses

Cybersecurity is now a core business requirement. Due to financial and operational risks, it should be treated as a strategic priority. All organizations must take proactive steps to protect customers, clients, or other community members who rely on digital services.

Small businesses are not absolved of this effort; if anything, SMBs require even more planning and protection because they are increasingly a top target among cybercriminals. Threat actors target smaller organizations because they often lack the protections found in larger organizations, making them easier to exploit. 

What are the common types of cyberattacks that target SMBs?

Cybersecurity data compiled by Microsoft reports that roughly one in three SMBs have experienced a cyberattack. Similarly, Verizon's Data Breach Investigations Report (DBIR) shows that SMBs suffered more breaches than large organizations in 2023.

Common attacks include:

• Phishing and social engineering. Manipulation and deception allow threat actors to trick targets into revealing sensitive information such as passwords. Targeted attacks aimed at specific individuals may be referred to as spear phishing, while baiting uses appealing promises (such as free downloads) to deceive victims.
• Malware and endpoint attacks. Malicious software is meant to cause damage, often by gaining access to unauthorized systems and stealing data. Endpoint attacks target specific devices (such as smartphones or laptops) to gain access or install malware.
• Ransomware. Centered around the locking or encrypting of the victim's files to impede access, ransomware attacks involve demands for payment in exchange for restored access.
• Credential theft. Stolen login details allow threat actors to gain access to vulnerable accounts or systems, typically by impersonating legitimate users. 

What does a data breach cost a small business?

A survey from Microsoft estimates the average cost of a cyberattack targeting an SMB at approximately $254,000, though costs can vary significantly depending on severity and response time.

Data breaches can prove expensive for businesses of all sizes, but SMBs are often less capable of shouldering this burden. They may lack the in-house resources to help them mitigate damage and may also face financial strain in the form of downtime, operational disruptions, and even customer churn. Even a single incident can trigger restoration and forensic expenses that exceed what many businesses invest in prevention.

Direct financial costs

Direct financial costs include the immediate expenses businesses incur when responding to and recovering from a data breach.

These costs begin with incident response, especially as SMBs often require external responders such as cybersecurity specialists. These experts may charge high emergency rates, with forensics and containment tasks all adding to billable hours. According to Microsoft, following an average SMB-targeted attack, investigation and recovery costs total $77,957.

Breaches can also lead to legal and regulatory penalties, especially if required security safeguards were not in place. According to Microsoft, fines average $20,623 after an SMB is attacked. Additional fines are possible in highly regulated industries; in healthcare, for example, breaches involving protected health information could trigger HIPAA enforcement. 

Indirect costs and operational impact

Data breaches often cause downtime when attackers disrupt systems, tamper with authentication, or overwhelm digital resources. Even if hackers are not directly responsible for outages, systems are likely to go offline during containment and recovery efforts. Businesses may need to isolate affected systems or suspend applications. Although this downtime can help limit further damage, it still halts operations and disrupts customers, leading to downstream costs.

Repeated breaches may also impact insurance coverage. Many businesses now invest in cyber liability insurance in hopes of offsetting the financial impact of repeated attacks, but the very incidents addressed through insurance coverage may ultimately lead to increased premiums or reduced coverage limits.

Reputation and customer trust damage

Even if mitigation allows customers to resume purchasing products online or scheduling services, they may think twice about patronizing online businesses they used to trust. They may fear additional breaches in the future or simply assume that businesses do not have their best interests at heart.

Either way, this can be one of the most devastating and lasting impacts of a breach, which can contribute to significant long-term financial losses, in some cases exceeding $1 million, according to Microsoft. Drops in customer trust result in fewer conversions and fewer word-of-mouth referrals. 

Real-world example of a small business data breach

With cyberattacks affecting a significant portion of SMBs, real-world examples are increasingly common. They strike even the most seemingly savvy professionals, as evidenced by a ransomware attack that ultimately led to the closure of California practice Wood Ranch Medical. Using encryption to block access to critical patient records, attackers also blocked backup systems.

Other examples relate to skimming attacks; contact lens retailer Vision Direct, for example, left over 16,000 customers at risk, with attackers modifying code on the checkout page. While Vision Direct promised to compensate customers, the incident triggered significant operational challenges along with reputational damage for a company that prided itself on maximizing customer convenience.

How can SMBs help prevent a data breach?

Preventing a data breach is significantly more cost-effective than responding to one.

As Verizon clarifies, today's small businesses cannot afford to shirk cybersecurity efforts, as breaches can cost hundreds of thousands or even millions in recovery costs and reputational damage. High-impact preventative efforts include:

• Strengthen access and authentication. Strong passwords plus multi-factor authentication can block brute-force attempts to prevent credential theft, especially if paired with least-privilege access. Take this a step further with passwordless authentication, using cryptographic solutions to avoid the risks associated with shared secrets.
• Train employees to recognize cyberthreats. Many attackers prey on employee confusion, as evidenced by a business email compromise attack targeting the staff of Shark Tank investor Barbara Corcoran. Employee training can limit the potential for downloads and other behaviors that accommodate social engineering. Employees should be alerted to signs of phishing attempts or other suspicious behaviors but should also respond to simulated scenarios that build real-world instincts via immersive experiences.
• Secure systems and endpoints. Because endpoints are common targets for malware attacks, they must be consistently addressed via device-level controls along with endpoint detection tools. Software should be regularly updated, along with consistent website security scanning and regular patching to address known vulnerabilities.
• Protect data and documents. Data must be protected at rest and in transit, with digital signature certificates confirming the integrity and authenticity of sensitive documents. Email must also be addressed as it is a common attack vector; use S/MIME (Secure/Multipurpose Internet Mail Extensions) certificates to prevent spoofing while encrypting messages and authenticating senders.
• Manage digital certificates and website security proactively. SSL certificates help protect against man-in-the-middle attacks by encrypting data and verifying identities. This creates a strong foundation for securing online transactions. Don't simply focus on deployment; certificates must be consistently managed to prevent expirations and related outages.
• Vet vendors and service providers. Many attacks originate with third-party vendors, even when in-house practices seem to be secure. These issues are best prevented through in-depth vetting, confirming that all service providers adhere to strong security standards and keep controls up to date. 
• Have a response plan ready. Define roles, responsibilities, and communication steps in advance so your team can respond quickly and limit damage if an attack does occur.

What to do If your small business is attacked

Many SMBs will be targeted at some point, making preparation critical. Strong monitoring solutions help detect suspicious activity early. Proactive strategies must also extend to mitigation, which, in the event of a breach, limits the damage.

• Act immediately to contain the threat. Disable compromised accounts and isolate affected systems to limit attacker access. Prompt containment can limit the scope of the damage and set the stage for a quick recovery. This prevents attackers from moving laterally or escalating privileges.
• Assess the damage. As threats are contained, examine the impact to discern what was harmed and how recovery efforts can proceed accordingly. This begins with identifying compromised systems and determining where (or how) data was accessed. Document findings throughout this process to support regulatory reporting and remediation efforts.
• Notify stakeholders and customers. When sensitive information is compromised, legal requirements may mandate timely notifications for harmed individuals. Regulators and insurance providers will also likely require notifications. These should detail what occurred and where data may have been compromised, along with steps taken to mitigate the damage.
• Recover and restore systems. Recovery efforts often center around backups, which should be assessed and tested to confirm that they are free of compromise. Restored systems should be patched and rebuilt. 

Strengthen security to prevent future attacks. Use the incident as a learning opportunity to close security gaps. Implement stronger controls such as multi-factor authentication, improved access policies, and continuous monitoring. Automate critical processes like digital certificate management, patching, and security scanning to reduce human error and ensure protections stay up to date.

Prevention is cheaper than recovery

Proactive cybersecurity requires layered strategies that address the many potential sources of risk. Digital certificates and vulnerability scanning services cost far less than incident response while keeping operations and reputations intact.

Solutions such as encryption, identity verification, and automated certificate management can help SMBs reduce risk and maintain secure operations. Learn more about Sectigo’s offerings for small business security and risk reduction.

Sources

• https://cdn-dynmedia-1.microsoft.com/is/content/microsoftcorp/microsoft/final/en-us/microsoft-brand/documents/SMBCybersecurity-Report-Final.pdf
• https://www.sbir.gov/tutorials/cyber-security/tutorial-1
• https://www.verizon.com/business/resources/reports/2024-dbir-data-breach-investigations-report.pdf
• https://www.business.hsbc.uk/en-gb/insights/growing-a-business/cybersecurity-for-small-business-why-now-is-the-time-to-prioritise-security
• https://www.verizon.com/business/en-sg/resources/infographics/four-small-business-cybersecurity-myths/
• https://www.hipaajournal.com/wood-ranch-medical-announces-permanent-closure-due-to-ransomware-attack/
• https://www.infosecurity-magazine.com/news/verizon-dbir-smb-ransomware-attacks/