Reputation is everything in business, so it’s easy to see why reputational harm poses a costly risk to small businesses.

Reputational harm generally occurs when a business gets portrayed negatively in some way, from a bad online review to a negative newspaper article to an ex-employee who badmouths the company all over town. This can tarnish the image of a small business and even result in lost profits. Fortunately, your business insurance protects you from reputation-related risks.

Damage to your reputation can really cost a small business. An assessment of claims data by The Hartford found that the average harm-to-reputation reputation claim costs $50,000, compared with $20,000 for a slip-and-fall and $8,000 for burglary and theft. So, it’s smart to make sure you’re protected by insurance.

In some scenarios, a reputation harm fight can lead to a costly court battle. Consider the case of a Teaneck, N.J. event planner:

New York mother Honey Bernstein hired Iris Gillon of Iris Gillon Music’N Celebrations to book a band for her son’s wedding. At the wedding, Bernstein disliked the music so much that she ordered the band to stop playing and cued up an iPod playlist. Afterward, she posted a bad review, complaining that the singer was “awful,” that too few musicians came and that the band leader had “no personality whatsoever.” The small business owner sued her former client for libel, product disparagement and defamatory injury to reputation. In her lawsuit, Gillon alleged that she had one customer cancel a contract as a result of the bad review, forcing her to issue a refund of $3,700, and that she generally experienced a downturn in business after the review was posted. The case is making its way through the courts.

Reputation damage commonly results from online complaints or reviews, says Kelly Edwards, the CEO and Senior Marketing Director of Lawton Marketing in Lawton, Okla., who has shepherded many small businesses through reputation catastrophes.

In addition to unhappy customers, small businesses may get disparaged by disgruntled former employees and competitors, Edwards says. Any small business owner can get entangled into such a dispute as the victim or even the accused perpetrator.

The good news is that proactive action can help you protect your business. These five steps can help you avoid costly reputation damage:

Nurture your good name.

Small business owners should work hard to collect reviews from happy customers to diminish the power of any occasional negative reviews, Edwards says. For example, she recently went out to dinner in Las Vegas. The waiter, learning the group enjoyed the meal, offered them each a free glass of wine if they pulled out their smartphones and review the restaurant. However, make sure you learn and respect the rules of online review sites, and never review your own business or ask family and friends to sing your praises online, Edwards says.

Monitor mentions of your business.

Set up Google alerts for your business name and use social media management tools like Hootsuite to check social media regularly, Big Mouth Marketing , a Scottsdale, Ariz., online marketing agency, recommends. If you publish a blog that allows comments, either require approval to avoid inappropriate comments or set an alert to notify you of new comments. The sooner you’re aware of potentially damaging statements, the faster you can take action to correct the problem.

Do damage control.

If you discover a negative review or an online complaint, respond in a timely manner. Apologize publicly for the experience and provide your business phone number, asking the customer to call so you can rectify the situation. That lets the dissatisfied client or customer know they were heard and may stop them from spreading more negative information. This “makes you look like the good guy,” Edwards says.

Try to talk the problem out.

Simply picking up the phone can solve some problems. Edwards says she once found an unflattering online post about her own marketing agency. Based on the wording, she suspected a competitor had written it. She called the business and left a polite but firm voicemail message asking them to remove the post. It disappeared almost immediately.

Learn the law.

Most small businesses publish content on blogs and social media. For that reason, it’s important to learn the laws about reputation, so you can protect yourself and avoid inadvertently harming the good name of another business. For example, making a false statement of fact, even unknowingly, could have legal implications — part of the Gillon lawsuit hinges on the defendant writing that only three band performers showed up while photographic evidence shows six performers. And it’s possible to harm someone’s reputation verbally. So, don’t disparage competitors in public or when chatting with customers.

If you take these actions, you can help strengthen the standing of your small business and reduce the risk of reputation harm.

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