Cybersecurity for Small Businesses: Protecting Your Financial Data

Published 25 November 2025

Table of contents

• Why cybersecurity matters for small businesses
• Common cyber threats facing small businesses
• Essential cybersecurity practices for financial data
• Tips to protect your financial and accounting data
• How to build a cybersecurity plan and train employees
• Data backup and disaster recovery planning
• Cybersecurity insurance and incident response
• Secure your financial data with Xero
• FAQs on cybersecurity for small businesses

Key takeaways

• Small businesses are particularly vulnerable to many forms of cyberattack. Small businesses are targeted in 43% of cyberattacks, yet only 14% are adequately prepared for them.
• Financial data, including bank accounts, customer payment information, and tax records, and accounting systems are key targets for theft, fraud, or costly ransomware attacks.
• Put basic cybersecurity precautions in place. Practices like strong passwords, multi-factor authentication, regular software updates, employee training, and encrypted data backups can prevent most common attacks.
• Plan ahead – keep your team updated on the latest threats, know who does what in the event of an attack, and practice what your team will do to recover from one.
• Cyber insurance policies can help cover costs of data breaches, but prevention through proper security practices and secure accounting software (like Xero) is the most effective way to protect your business.

Why cybersecurity matters for small businesses

Hackers and other cybercriminals can ruin your business. They steal your money, data, and time, and attacks affect customers’ trust, which can be hard to regain.

Cybercriminals usually target your financial data security,which includes your bank accounts, tax records, payment information, and payroll data. If your small business becomes a victim of a cyberattack, it can lead to theft, fraud, or costly ransomware attacks.

According to Verizon:

• while 43% of cyberattacks target small businesses, only 14% are prepared
• 60% of small businesses close within 6 months of a major cyberattack

Common cyber threats facing small businesses

Your business is vulnerable to cyber threats like:

• Phishing emails: fraudulent emails that trick employees into giving them passwords or sensitive financial data
• Outdated software: old versions of your software leave security gaps that hackers can exploit
• Ransomware: software that locks files and demands payment before making them accessible again
• Malware: programs created to harm computer systems,steal data, and spy on business activities
• Weak or stolen passwords: these make it easier for hackers to access your accounts
• Insider threats: include malicious employees or mistakes made on the job

Essential cybersecurity practices for financial data

Cybersecurity is not a one-time fix – it’s ongoing. So put in place essential practices to protect your financial information and data. With the right attitude and good practices that you apply consistently, you can keep your business secure.

Here are some ongoing practices to keep your business safe.

• Make security a priority: Financial security practices – like the ways you share information and your choice of accounting software – should be central to every financial decision.
• Always use strong passwords: Ensure you and your team always create complex and unique passwords across all accounts.
• Prioritize multi-factor authentication: Make MFA the standard across all of your financial tools for the added security protection.
• Keep up with software updates: Always complete software and system updates to avoid the exploitation of security gaps.
• Create a culture of awareness: Help your team recognize phishing, harmful links, and unsafe practices.

Here’s more information from the SBA on data security best practices.

Tips to protect your financial and accounting data

Cybersecurity doesn't require a huge budget – basic practices can prevent most attacks. Here are simple, effective steps you can take to protect your data.

• Create strong, unique passwords – avoid simple passwords and the same password across accounts.
• Use secure financial systems – cloud-based platforms often provide better security than local systems. Choose one that monitors for suspicious activity, encrypt your data, and automatically back up your information.
• Enable MFA – multi-factor authentication when logging in is one of the simplest, most effective ways to keep bad actors out.
• Limit access – only give your team the data it needs, and regularly review the access permissions to make sure no one misuses the data.
• Back up your data – regularly back up your important information and data to protect it against ransomware, and secure it offline or in the cloud.
• Update your software – to make sure your software is secure against the latest threats, regularly update your accounting software, operating system, and any banking apps you use.

Here are some further data security tips from the FTC.

How to build a cybersecurity plan and train employees

A strong, reliable cybersecurity plan strategy is as much about teaching your team as it is about the right tools. So help your employees know what to do and look out for if there’s a cyberattack. Here are the basic steps to creating a plan and training your team.

Identify vulnerabilities

Determine what’s most important for your team to learn. For example, consider your most critical financial systems and the type of sensitive data your business handles. Then, create policies and procedures you want your team to follow for responding to cyberattacks – for example, who to contact and how to isolate systems if there’s a breach.

Train your team

Educate your team about common cyberattack threats. Make sure they know how to recognize phishing emails and harmful links. Then, practice safe habits and encourage the use of MFA, secure passwords, and the overall safe handling of important financial data. Hold regular training sessions so your team knows the latest security threats, and has the need for security fresh in their minds.

Test your cybersecurity plan

Carry out drills using random scenarios (like simulated phishing and ransomware attacks) to see how your employees respond. Look at the results, consider improvements you can make, and update your plan accordingly.

Data backup and disaster recovery planning

Even with strong security measures, threats may still arise. So make sure you create backups and have a recovery plan in place.

Regularly back up your data

Automate your backups for financial data and other important information. Save your data in multiple locations – like the cloud and offline – in case there’s a system failure.

Then test your backups to make sure your backups aren’t corrupted and that you can restore your files quickly.

Create a disaster recovery plan

Determine which systems you need back online first. Make sure your team knows who’s responsible for what and give them instructions for recovering and resuming business operations.

Don’t forget to review your plan regularly. Update your backups and recovery plan as your business grows. This ensures it covers new systems, data, and employees.

Cybersecurity insurance and incident response

Since breaches can happen even with the best security practices in place, it helps to have cybersecurity insurance and an incident response plan. Here’s a look at both of these.

Think about getting cybersecurity insurance

Depending on your policy, insurance covers losses from cyber incidents, including first-party losses (like system damage) or third-party liabilities like legal costs and fines. Many policies also give you access to PR experts to help manage customer communications after a security breach.

Create an incident response plan

This is a plan setting out your business's cyberattack procedures. It outlines how to handle the crisis, including what to do, how to recover systems, and how to prevent future breaches. It should also list:

• Who on your team (or which external support) handles each part of the response
• How and when to notify stakeholders, customers, and regulators

After a cyberattack, review your response plan, analyze what happened, and update your plan accordingly.

Secure your financial data with Xero

While protecting your small business can seem overwhelming, the right tools, habits, and planning can protect your data and keep your business running. Xero gives you world-class small business data protection: it stores data’s secure, cloud-based accounting with encryption, user permissions and automatic backups. That means you’ll have the peace of mind you need to grow your business with confidence.

Get one month free today.

FAQs on cybersecurity for small businesses

Here are some commonly asked questions about cybersecurity for small businesses:

How much should I budget for cybersecurity?

Your cybersecurity budget depends on things like your business size, industry, and your operation’s data sensitivity. Here are some general guidelines from Total Assure:

• 1–10 employees: about $8,500 annually
• 11–50 employees: about $25,400 annually
• 51–100 employees: about $78,000 annually

Do I need to hire a cybersecurity professional?

While you’d definitely benefit from hiring a professional, you don’t always need to. If your small business doesn’t handle sensitive customer data, you can follow best practices like using security tools and secure, cloud-based accounting tools like Xero. You can also hire a part-time consultant or managed service provider.

What's the most important security measure for small businesses?

The most important thing you can do for your small business’s security is to enable multi-factor authentication (MFA). It’s cheap, stops most security breaches before they start, and it dramatically reduces the risk of cyberattacks.

How do I know if my accounting software is secure?

To make sure your accounting software is secure, check for encryption, look for MFA, review the company’s security certifications, confirm secure cloud storage, and ensure the security of your own access through the use of strong passwords, MFA, and prompt software updates.

Here’s more about Xero’s security practices and features

What do I do if I suspect a data breach?

Act fast. Disconnect affected devices from your network, change passwords, and turn on MFA if it’s not enabled already. Then contact your IT provider or cybersecurity professional to secure your systems and investigate.

Is free antivirus software enough for my business?

Not usually – for most small businesses, free antivirus software isn’t enough as it has only basic protection that won’t prevent determined cyberattacks. Free antivirus software also has limited support, and there are no compliance guarantees.

How often should I change passwords?

Change your passwords every 3–6 months – and definitely after every security breach.

Do I need cybersecurity insurance?

It’s a very good idea. Although it’s not legally required, it helps protect you against the financial and operational effects of cyberattack – and gives you peace of mind.