If there’s one “New Year’s resolution” that every company should make, it’s to review how they’re protecting themselves financially and make changes as appropriate. So, maybe that’s two resolutions!
But the point is, financial protection (small business insurance, for example) isn’t a “set it and forget it” type of thing. It’s something you need to review regularly and update as needed. And the start of a new year (or better yet, the end of the current year) is a great time to consider what’s changed for your business (your offerings, headcount, assets, market, etc.) and whether those changes should cause you to modify how you shield your business from financial danger.
If you’re currently doing very little to protect your business, it’s even more important to take the actions outlined below.
Proven Strategies for Avoiding Financial Difficulties
There are many ways to reduce your company’s risk of financial troubles. Some are actions you can take, while others involve working with various product or service providers. Either way, the result is the same: Your business is less likely to experience adverse financial events.
That helps your company in a couple of ways. First, you suffer fewer financial losses. That alone is reason enough to spend some time considering and addressing your financial risks. But there’s also the ripple effect from financial losses. For example, while recovering from a loss, you may have less capital to put toward developing new products or services or improving existing ones. That’s a problem for many reasons, including that it can hurt your ability to land or retain customers.
So, carve out some time to take these steps. You’ll be glad you did!
- Write a business plan. Your products and services may be outstanding, but their quality alone won’t make your company successful. After all, you probably have competitors with comparable offerings. And if you don’t now, you will soon. Consequently, you need a plan detailing how you’ll use your financial resources in the year ahead to run your business and grow your revenues. Many companies fail simply because they run out of capital before they’re consistently generating revenue. Those that do often thought they didn’t need a business plan and could just “trust their instincts” and make course corrections as needed.
- Identify and address liability risks. One of the fastest and most common ways businesses find themselves in financial trouble is as a result of lawsuits. One day, your company is cruising along generating record profits. The next, you’re hit with a lawsuit filed by someone who slipped on a wet floor in your lobby and broke their arm. Having business insurance (see below) to cover your legal fees, damages awarded, etc., can help, but you’re much better off avoiding incidents in the first place. Actions like promptly shoveling walks, mopping wet floors, and repairing carpet damage can significantly reduce your risk of visitor injuries. You should also teach your employees about safety best practices for your industry. If your team members drive company vehicles for work purposes (to make deliveries, purchase supplies, meet with clients, etc.), you should have written rules on how those vehicles must be operated. Needless to say, that should include a ban on texting while driving.
- Buy business insurance policies. There are several types of business insurance. Each covers different types of risks. Policies you may need based on your industry, location, and other factors, include general liability, commercial auto, professional liability, workers’ compensation, cyber, umbrella, and a business owners policy (BOP). The good news is that a particular policy may cost just a few hundred dollars annually while providing hundreds of thousands of dollars of protection.
- Work with an attorney on your business contracts. You can eliminate confusion and protect yourself from the financial repercussions of ambiguity by ensuring that your interactions with vendors, business partners, etc., are thoroughly and clearly defined. People and entities are less likely to sue you if you’re “on the same page” with them. Preventing lawsuits is critical since your company must defend itself even against frivolous allegations.
- Implement state-of-the-art cybersecurity measures. The frequency and severity of cyberattacks continues to rise. If you have lax cybersecurity and someone hacks your system and steals sensitive information, it can be very costly to your business. Expenses you (or your insurer, if you have cyber insurance) will have to cover can include everything from the cost of notifying customers of an incident to forensic audits to determine how a hack occurred and steps to defend against future attacks. It’s important to understand that it’s not just large corporations that get hacked. Cybercriminals target businesses of all sizes. Some may even prefer smaller companies, thinking their cybersecurity measures may be weaker.
- Set aside funds for emergencies. Some types of incidents can cause a range of financial damage. For example, if an essential piece of machinery fails, having capital available to repair or replace it minimizes the overall cost of the incident. The expense can be much higher if you don’t have a cash reserve and must rent equipment until you can afford to buy it.
- Take care of your assets. Keeping computers, infrastructure, equipment, and other assets in good working order can prevent significant financial consequences. For example, adhering to the warranty terms on an expensive machine helps ensure that it’s covered and you don’t incur a large out-of-pocket repair or replacement expense.
Avoiding the Psychological Cost of Financial Losses Is Also Crucial
Suffering a large financial loss hurts your operations and can also negatively impact the psychological well-being of you and your employees. That’s a “cost” that can linger for an extended period, inhibiting everything from innovation to productivity.
So, protecting your company financially in 2023 is about more than the short-term dollars and cents. It’s about the long-term health of your organization and everyone who works there. Fortunately, you aren’t at the mercy of fate. You can take actions today to ensure your business maintains positive forward momentum tomorrow and down the road.