There’s no doubt that artificial intelligence (AI) presents significant opportunities for small businesses. To name a few, it can help automate tedious processes, aid with recruitment, and create online content.

However, there are also possible risks of AI and it’s important to assess whether it could be doing more harm than good. In this article, the UK’s leading company formation agent, 1st Formations, unpacks this notion and explores the potential risks that artificial intelligence could pose for a small business.

Risk of inaccurate information

One of the biggest problems a small business could face when using artificial intelligence concerns its accuracy. This issue particularly involves chatbots which, theoretically, can write anything you want them to, be it a blog, marketing plan, or a social media post.

But it doesn’t come without its limitations and challenges. When you ask ChatGPT, for example, a question, it scans existing information across the web to generate a response - like Google, but in a conversational format.

To give you a factually correct answer, it relies on that existing data to be correct and up to date, which it very well may not be. At this stage, you need a human to check those results.

Furthermore, machine-generated content could contain grammatical and spelling errors. It’s also likely to be in US rather than UK English. Therefore, it’s essential to proofread it before use. Otherwise, publishing poorly written content could cost you your customers’ trust.

So, while AI is quick and convenient (and, indeed, clever), there’s a high risk of faulty, inaccurate, and untrustworthy results that could damage your reputation.

It can hurt your SEO

It’s not just inaccuracies that a small business needs to be mindful of when using AI, but also low-quality results that could hurt your search engine optimisation (SEO). SEO is the improvement of a website’s visibility and relevance on search engines.

To raise brand awareness and make it easier for people to find your business online, you need to improve your search engine ranking with original, high-quality website content. Unfortunately, there’s only so much that a machine can do for you in this situation.

As a small business owner, you probably don’t have the time to spare for content creation, so you ask AI to write some blogs for you. While it certainly speeds things up, machine-written blogs are generic and unoptimised.

They won’t contain your keywords, they won’t be adapted to your tone of voice, they won’t be edited for your target audience, and they’re unlikely to be based on authoritative sources. Without these crucial elements, your SEO strategy is futile.

In addition, AI-written text will always lack the qualities only a human can inject; personality, creativity, and authenticity. These are all vital for a growing business working hard to attract customers.

That’s not to say there aren’t any benefits to using artificial intelligence. Use it as a springboard and to save time, but we’d advise against using artificial content verbatim. You should adjust it for SEO purposes and to make it unique to your brand.

It can be unreliable

Another potential problem to consider is reliability. We (particularly those who aren’t very tech-savvy) often assume that artificial intelligence is, well, intelligent and flawless, but that’s not always the case.

Let’s take a look at an example. In February 2024, it was reported that Air Canada was facing legal action from a customer, who received false discount information from an automated chatbot.

Following the death of a family member, the customer asked Air Canada’s virtual assistant about bereavement fares. He was advised that he’d be able to claim a bereavement discount within 90 days of purchasing a standard ticket.

After paying, the airline rejected the refund claim. Unfortunately, the chatbot failed to inform the customer that bereavement discounts can’t be claimed after purchasing a ticket.

Interestingly, Air Canada claimed that it can’t be held accountable for a chatbot’s faulty outputs, arguing that it is a “separate legal entity that is responsible for its own actions.”

That’s another issue entirely, but looking at the plain facts of this situation, a business has suffered financial and reputational damage and has lost a customer due to poor AI performance. This wouldn’t have been the case had an experienced, trained, and empathetic human being sat behind the keyboard.

In summary, there’s a high risk of artificial intelligence being unreliable. Even for a large corporation like Air Canada, it can cause significant damage. And a small business with limited budgets and a small customer base can’t exactly afford to make such major mistakes.

Your recruitment could suffer

Another AI risk for small businesses is challenging recruitment. According to research by the Scottish recruitment platform, Eden Scott, over 60% of candidates are reluctant to join a company that uses artificial intelligence in its hiring process.

In those early business stages, the people you hire are extremely important; they set the foundations for your company's culture, values, and ultimately, its success. Considering the overwhelming apprehension towards AI among applicants, you could be significantly restricting your access to valuable, high-quality talent.

Similar to your digital content, your recruitment methods should be authentic. When writing a job description, shout about your business’s journey and why it’s an exciting place to work in your own voice - something that artificial intelligence can’t give you, and job seekers will notice this.

Also, when you receive CVs, try to avoid using AI scanners to filter through them. There might be a high volume of repetitive documents to comb through, but you could make the mistake of rejecting suitable candidates if their CVs are not adapted for AI readers.

You could lack the right tech skills

An important risk to consider before using artificial intelligence tools in a small business is whether you have the right skills to use them correctly. In a report by the Federation of Small Businesses (FSB), almost half of small businesses said they (or their workforce) lack the skills and/or knowledge to utilise AI successfully.

Artificial intelligence systems are incredibly complex and require technological proficiency to be used effectively in business. On top of that, they’re constantly advancing, and it happens quickly.

For instance, ChatGPT started as a simple text generator in 2018. Hardly anyone knew it even existed. Fast-forward to 2024, everyone is talking about this extremely advanced tool that’s capable of performing niche tasks, understanding patterns, processing results in a matter of seconds, and even learning and adapting to human languages.

To stay on top of these swift changes, you’d need to maintain your and your employees’ technological skills and knowledge with up-to-date courses and qualifications, all of which can be costly for a small business. If you fail to keep up, you could hurt your business with out-of-date methods.

Risk of job losses

There are numerous ethical concerns regarding the use of AI. One of the biggest ones is the potential rise of job losses.

Since the ChatGPT boom in 2023, there have been numerous discussions and speculations about the types of jobs that artificial intelligence is most likely to replace. Those that are most at risk include:

  • Tech, software, and data analysts
  • Media, advertising, and content roles
  • Legal professionals
  • Market research analysts
  • Teachers

The list goes on. Considering that small businesses and SMEs account for 99% of the UK economy and over 60% of employment, entrepreneurs are enormously influential in strengthening our workforce and creating and maintaining jobs.

Yes, everyone wants to cut costs, but with so many jobs at risk of being lost to AI, there’s a considerable ethical concern about what’s more important, financial gain or people’s welfare.

Also, small businesses would struggle to create a company culture in an economy where artificial intelligence replaces this many jobs. Company culture is instrumental not only in constructing their brand image but also in growing a customer base.


Small businesses struggling to spin multiple plates can find lots of opportunities in artificial intelligence. It can save time and streamline numerous processes.

However, there are also some significant risks to bear in mind before utilising AI in your organisation. For example, it can be inaccurate, unreliable, and inadequate. Entrepreneurs looking to integrate artificial intelligence into their businesses should carefully weigh up the pros and cons first.