The Hidden Costs of a Data Breach for Small- and Medium-Size Businesses

By Nathaniel C. Gravel, CISA, CISM, CRISC

As a cybersecurity consultant, I’ve seen firsthand the devastating impact that a data breach can have on small and medium-sized businesses (SMBs). While the immediate costs of a ransom payment or fine may seem daunting, the hidden costs that follow can be even more detrimental to a company’s long-term success. In this article, we’ll explore the often-overlooked expenses that SMBs face in the wake of a data breach, and why investing in robust cybersecurity measures is crucial for any business, regardless of size.

  1. Lost Business and Sales: One of the most significant hidden costs of a data breach is the loss of business and sales. When a company’s sensitive data is compromised, it erodes customer trust and can lead to a mass exodus of clients. In fact, a study by the Ponemon Institute found that the average cost of lost business due to a data breach is $1.52 million. For SMBs, this figure can be particularly devastating, as they often rely on a smaller client base and may struggle to attract new customers in the wake of a breach.

    Moreover, the loss of business isn’t limited to the immediate aftermath of a breach. The reputational damage caused by a data breach can linger for years, making it difficult for SMBs to regain their footing in the market. This is particularly true in industries where trust is paramount, such as healthcare, finance, and legal services.

  2. Lost Time and Productivity: Another hidden cost of a data breach is the loss of time and productivity. When a breach occurs, SMBs must divert resources away from their core business activities to address the issue. This can include everything from conducting forensic investigations to communicating with affected clients and stakeholders. In some cases, SMBs may even need to shut down operations temporarily to contain the breach and prevent further damage.

    The time and effort required to respond to a data breach can be substantial, and it often falls on the shoulders of already overworked IT staff. This can lead to burnout and turnover, further compounding the costs of the breach. Additionally, the distraction of dealing with a data breach can cause SMBs to miss out on important business opportunities, putting them at a competitive disadvantage.

  3. Restoration of Data and Equipment: In the event of a data breach, SMBs may need to restore lost or damaged data and equipment. This can be a costly and time-consuming process, particularly if the company doesn’t have robust backup and disaster recovery systems in place. According to a report by Datto, the average cost of downtime for SMBs is $8,000 per hour. This figure includes not only the cost of restoring data and equipment but also the lost productivity and revenue associated with the outage.

    Furthermore, even if an SMB has backup systems in place, there’s no guarantee that the data will be recoverable. Cybercriminals are increasingly using sophisticated tactics, such as ransomware, to encrypt data and demand payment for its release. In some cases, even if the ransom is paid, the data may be permanently lost or corrupted.

  4. Communications with Clients and Customers: Another hidden cost of a data breach is the need to communicate with affected clients and customers. SMBs must notify individuals whose data has been compromised and provide them with guidance on how to protect themselves from further harm. This can include offering credit monitoring services, setting up call centers to field inquiries, and providing ongoing support to affected individuals.

    The costs associated with these communication efforts can be substantial, particularly for SMBs with limited resources. Additionally, the reputational damage caused by a data breach can make it difficult for SMBs to retain existing clients and attract new ones, even after the initial crisis has passed.

  5. Reputational Damage: Perhaps the most significant hidden cost of a data breach is the reputational damage it can cause. In today’s digital age, a company’s reputation is one of its most valuable assets. A data breach can quickly erode that reputation, leading to a loss of trust among customers, partners, and investors.

    The reputational damage caused by a data breach can be particularly severe for SMBs, which often rely on word-of-mouth referrals and local goodwill to drive business. A single breach can tarnish an SMB’s reputation for years, making it difficult to compete in an already crowded market.

    Moreover, the reputational damage caused by a data breach can extend beyond the company itself. In some cases, the breach may be the result of a third-party vendor or partner, which can damage the SMB’s relationships with other businesses and suppliers.

The hidden costs of a data breach can be devastating for SMBs, extending far beyond the initial ransom payment or fine. From lost business and sales to lost time and productivity, the expenses associated with a breach can quickly add up, putting an SMB’s very survival at risk.

To mitigate these risks, SMBs must invest in robust cybersecurity measures, including regular employee training, strong password policies, and up-to-date software and hardware. Additionally, SMBs should have a comprehensive incident response plan in place, outlining the steps to take in the event of a breach.

Ultimately, the cost of prevention is far less than the cost of a data breach. By prioritizing cybersecurity and taking proactive steps to protect their data, SMBs can safeguard their reputation, their bottom line, and their future success.

Nathaniel Gravel is a cybersecurity expert and consultant with Gray, Gray & Gray, LLP, a consulting, accounting and business advisory firm based in Canton, MA. He can be reached at

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