Everyone’s talking about AI’s potential to transform business. But while you’re hearing about efficiency gains and competitive advantages, there are risks that don’t make the headlines—risks that could seriously impact your business if you’re not prepared.

These aren’t the dystopian “robots taking over” scenarios. These are practical, immediate risks that SMBs (small and mid-sized businesses) are encountering right now as they adopt AI tools. Understanding them doesn’t mean avoiding AI—it means using it smarter.

When employees use AI tools like ChatGPT, Claude, or Copilot, they’re often sharing more than they (or you) realize.

What’s actually happening:
Your team member pastes a client contract into ChatGPT to help write a response. Or uploads a financial report to get help with analysis. Or shares customer data to generate marketing copy.

The problem:
That information may now be stored on AI company servers. Here’s what most people don’t realize: free versions of AI tools typically use your conversations and data to train and improve their models. That client contract you pasted into ChatGPT’s free version? It might now be part of the training data that helps the AI respond to future users.

Even paid versions store your information, but they usually offer better data protection policies and often don’t use your inputs for training. However, many businesses start with free versions without understanding this crucial difference.

Real examples we’ve seen:

• Employee shares customer list with AI tool to help segment for marketing
• Team member uploads internal financial data to get help creating reports
• Someone uploads proprietary company information to get help optimizing production
• Staff shares client emails with AI to help draft responses

What you can do:
Create clear guidelines about what information can and cannot be shared with AI tools. Understand the difference between free and paid AI services—free versions typically use your data for training, while business/paid versions usually offer better data protection. Many AI services offer business plans with stronger privacy controls, but you need to know the difference and make intentional choices. Don’t assume that upgrading later will retroactively protect data you’ve already shared with free tools.

AI tools can produce convincing responses that are completely incorrect. And they do it with the same confidence they show when they’re right.

Why this matters more for SMBs:
Large companies often have multiple people reviewing AI-generated content. SMBs often don’t have that luxury—one person uses AI to create something, and it goes straight to clients or gets implemented immediately.

Common areas where we see problems:

• Legal or compliance information that sounds authoritative but isn’t accurate
• Financial calculations that look right but contain errors
• Technical specifications or requirements that miss critical details
• Marketing claims that could be misleading or incorrect

Recent example:
A small business used AI to help write terms of service, not realizing the AI included clauses that weren’t legally enforceable in their state. They discovered this during a client dispute.

The solution isn’t avoiding AI:
It’s building verification into your process. Treat AI like a smart first draft, not a final answer. Have someone with expertise review AI-generated content before it goes out the door.

As AI tools become more integrated into daily operations, some businesses are creating dangerous dependencies without realizing it.

What this looks like:

• All customer service responses are AI-generated
• Marketing content creation relies entirely on AI tools
• Financial analysis depends on AI-powered spreadsheet tools
• Sales proposals are primarily AI-written

What happens when it breaks:
AI services go down (they do, regularly). Your team doesn’t know how to do the work manually anymore. You discover the AI was making systematic errors you didn’t catch. The AI company changes their terms or pricing dramatically.

The hidden risk:
Your team gradually loses the skills they used to have. When the AI isn’t available, productivity doesn’t just slow down—it stops.

Better approach:
Use AI to enhance human capabilities, not replace them entirely. Make sure your team maintains the underlying skills needed to do the work manually when necessary.

AI tools often start cheap or free, then costs can escalate quickly as usage grows.

How this happens:
You start with a free ChatGPT account. Then upgrade to Plus for $20/month. Then your team needs it, so that’s $100/month. Then you need the business version for data protection. Then you add AI features to your existing software subscriptions.

Real cost example:
A 15-person company we know started with free AI tools and ended up spending over $2,000/month on various AI subscriptions within six months. Nobody was tracking the total cost because each tool seemed reasonably priced individually.

Plus usage-based pricing:
Many AI services charge per use. What starts as $50/month can become $500/month as your team uses it more. Unlike traditional software with predictable licensing, AI costs can spike unexpectedly.

What to watch for:
Track total AI spending across all tools and users. Set usage limits or alerts. Regularly review whether you’re getting value proportional to what you’re spending.

This might be the biggest long-term risk, and it’s already happening.

What we’re seeing:

• Writers who can’t create content without AI assistance
• Analysts who struggle with complex problems when AI isn’t available
• Developers who rely on AI for basic coding tasks
• Marketers who can’t brainstorm without AI prompts

Why this matters:
AI is a tool, but if your team becomes dependent on it for basic thinking and problem-solving, you’re vulnerable. What happens when you need creative solutions that AI can’t provide? Or when you need to verify that AI-generated work is actually correct?

The balance:
Use AI to handle routine tasks so humans can focus on higher-level work. But make sure your team is still exercising critical thinking, creativity, and core professional skills.

AI regulation is evolving rapidly, and small-medium size businesses often don’t have legal teams tracking these changes.

Current areas of concern:

• Industry-specific regulations (healthcare, financial services, etc.) that now intersect with AI usage
• Data privacy laws intersecting with AI usage
• Employment law considerations if AI impacts hiring, firing, or workplace decisions
• FTC guidelines on AI and automated decision-making that affect marketing and sales
• Professional licensing requirements that may restrict AI usage in licensed professions

What’s tricky for SMBs:
Large companies have compliance teams monitoring regulatory changes. SMBs often don’t learn about new requirements until they’re already in effect.

Practical steps:
Stay informed about AI regulations in your industry. If you’re using AI for anything customer-facing or decision-making, understand what disclosure or documentation requirements might apply.

As businesses integrate AI into existing systems, new security vulnerabilities emerge.

Common scenarios:

• AI tools connected to business databases
• Automated AI processes that can access sensitive systems
• AI-generated code that hasn’t been security-reviewed
• AI tools that sync with email, calendars, or file storage

The risk:
Each integration creates potential entry points for security issues. If the AI service is compromised, or if the integration isn’t properly secured, your business data could be at risk.

Questions to ask:
What data does this AI tool have access to? How is that access controlled? What happens if the AI service is breached? Who’s responsible for security in the integration?

Proactively managing AI risks opens the door to smarter, faster, and more secure growth. 

SMBs that manage AI strategically: 

• Innovate faster because they avoid costly rework from AI mistakes. 

• Build more trust with clients through better data handling. 

• Operate more profitably by spending smart and avoiding tool bloat. 

• Attract and retain talent by integrating AI in ways that empower—not replace—people. 

The takeaway:
Strong AI governance isn’t just about reducing risk—it’s about creating a more agile, resilient, and competitive business. 

AI can provide significant benefits to SMBs, but those benefits come with responsibilities. The companies that will succeed with AI are those that implement it deliberately, with proper safeguards and realistic expectations.  

The goal isn’t to eliminate all risk—it’s to understand the risks well enough to manage them effectively. That way, you can capture AI’s benefits while protecting your business from the downsides that many companies are only discovering after it’s too late. 

Our AI Readiness Assessment gives you a clear picture of where your business stands—what’s working, what’s risky, and where you can gain an edge. No jargon, no pressure—just practical insights tailored to your business.