If you’re a small business owner, you’re continually faced with risk. There’s operational risk, cash flow risks, liability risks, and even risks related to natural disasters. Fortunately, there are prudent and simple ways for you to minimize small business risks. Let’s take a look at five of the most important:
- Monitor your cash flow. Problems with cash-flow management can not only hinder your business in achieving maximum growth and success, but in some cases it can cause your business to move into the red. Having three to five months cash reserve will help protect you in the case that you lose your biggest customers, for instance. Financial expert, Jon Paul, recommends building a 13 week cash flow statement to minimize small business risks.
- Insure against specific business risks. Your standard general insurance policy may not cover you for specific business risks that are unique to your business. For instance, if you are an accountant, you may need Errors and Omissions insurance in addition to your main insurance policy
- Insure key employees. What happens if a key member of your staff leaves or is injured and not able to perform his duties? Would this have an impact on business operations? If you have staff who are mission-critical to the success of your business, you must have key-person insurance to minimize small business risk.
- Review insurance policies when your business changes. If your business has changed, you may be exposed to a new risk unknowingly. Examples include mergers, acquisitions, new product launches, doing business in another state or country, and hiring new people. All of these things could have triggered a new risk, so it’s important to ensure that your insurance covers you and your business against new risks.
- Cut your losses if necessary. If you try out a new venture, but it’s not working, don’t be afraid to cut your losses early and move on. Staying involved in a losing situation could get you even further in the hole, eventually causing your business to go under. To that end, make sure all contracts for new ventures include a clause on how to end the relationship and what would happen if you do.