Why Small and Medium-sized Businesses Should Conduct Annual Vendor Review

By Rob Ashcraft, CISO at KeyStone Solutions

Small and medium-sized businesses (SMBs) increasingly rely on third-party vendors for critical services such as IT support, cloud hosting, and financial management. While these services enable efficiency and scalability, they also introduce significant risks. A single vulnerability in a vendor’s environment can cascade into a full-blown breach for your business, disrupting operations and damaging customer trust. Annual vendor reviews provide SMBs with a structured approach to identify and mitigate these risks before they escalate, ensuring business continuity and resilience.

One of the most compelling reasons for annual vendor reviews is maintaining a robust cybersecurity posture. Certain vendors have access to sensitive data, internal systems, or network infrastructure, making those vendors potential entry points for cyberattacks. According to industry statistics, a majority of SMB breaches originate from third-party or upstream vendors. By conducting thorough annual vendor assessments, businesses can verify that vendors maintain strong security controls, update their practices, and comply with evolving threat landscapes. This is a preventative measure that will reduce exposure to cyber threats and strengthen overall security posture.

Regulatory compliance is another critical driver. Laws such as HIPAA, FTC Safeguards Rule, CMMC and PCI DSS mandate that organizations ensure their vendors adhere to strict data protection standards. Failure to meet these standards can result in hefty fines, lawsuits, and reputational damage. Annual reviews help SMBs confirm that vendors meet these requirements, maintain proper documentation, and implement necessary safeguards. This not only protects businesses from legal repercussions but also demonstrates a commitment to compliance and ethical data handling.

Beyond security and compliance, annual vendor reviews support operational stability. Vendors play a pivotal role in delivering essential services, and any disruption, whether due to outages, supply chain failures, or mismanagement, can severely impact business performance. Regular evaluations allow SMBs to assess vendor reliability, contractual obligations, and disaster recovery capabilities. This ensures that vendors can respond effectively to crises and maintain service continuity, safeguarding the SMB’s ability to serve its customers without interruption.

One last thought about annual vendor reviews…this critical process helps preserve customer trust and brand reputation. A data breach or operational failure involving a vendor can erode confidence and lead to customer attrition. By demonstrating due diligence in managing your third-party risks, customers are reassured that businesses put a high priority security and reliability. This fosters long-term relationships and positions the business as a trustworthy partner in an increasingly risk-sensitive marketplace. In short, annual vendor reviews are not just a compliance checkbox, they are a strategic imperative for SMBs seeking sustainable growth and resilience.