Being a small business owner is freeing, and it gives you unlimited potential to grow, as well as a sense of empowerment and self-responsibility.
Of course, it’s scary to own a business as well. There are a lot of risks, and a good business owner is going to be someone who understands and takes risk management seriously.
Risk management can’t help you avoid every potential pitfall of being a small business owner, but you can give yourself a significant level of protection and peace of mind.
Have the Right Insurance
The first thing you should do as a smaller business owner is making sure you have the right insurance.
Your needs can depend on your industry and the size of your business, as well as where you’re located. For example, small business insurance in Florida may include different requirements from California or New York.
One type of insurance every small business should have is liability insurance, protecting you from lawsuits. There are a lot of types of liability coverage, and one of the most basic is general liability insurance, which would help pay a claim against your business because of property damage or bodily injury.
In most states, you’re also required to have worker’s compensation insurance if you have employees.
Other types of insurance to look at are business auto insurance and professional liability insurance, which protects you if your business is sued because of harmful or negligent advice.
Diversify Your Offerings
The upcoming year is looking like it could bring a fair amount of uncertainty for most businesses economically but within challenges are often opportunities.
As part of that, make sure that you diversify your products or services as much as you can while still being the best at what you do.
This helps you provide more options and create more streams of income.
In too many situations, a small business is relying on one product or one major client to generate its revenue, or at least most of it. What happens if suddenly a better product comes on the market or your client leaves?
The goal is an expansion of your revenue streams as much as feasible without being stretched too thin.
You don’t have to reinvent the wheel, and you can keep new offerings in line with the core of your business.
In fact, you can diversify your revenue streams by just changing how you market something or who you’re marketing to.
Surround Yourself with Good Advisors
You can’t do everything on your own, as much as you want to as a small business owner. You need to have advisors around you who you trust.
For example, maybe you need a great attorney who can help you manage risk and determine the right direction for your business, or perhaps you bring an accountant on board so that you know when you’re developing an action plan and if it’s financially realistic.
If there’s something you know nothing about, bringing on an expert advisor may cost more in the short-term but mean the difference in your long-term success.
Prioritize the Needs of Your Family
When you start a small business, and you have a family, you have to prioritize their needs above everything else. That might mean that you still continue to have a more study income to support your family, as you’re simply going to be burning through cash if you’re heading a startup in its earliest days.
The top challenge for small business owners is a lack of cash flow, and you might feel the reality hitting you if you’re dealing with how to pay your personal and business expenses.
If you are starting a business but haven’t yet quit your job, you should try to wait until you’re at a point where your startup is replacing at least 60% of the current income you’re getting from employment.
Above, we talk about the importance of diversifying if you have an existing small business. Seeking new opportunities is important, but so is testing them.
You might think there’s a good opportunity, but that can end up being something that doesn’t work out for you. If you’ve gone ahead and spent a lot of capital without testing that potential good opportunity, you could be in trouble.
Always test the market before you do a full launch to minimize your risks. At a minimum, do in-depth research. Ensure that there’s an actual demand for your idea, whether it’s a product or service.
Reduce your risk as a business owner by never overcommitting to something unproven.
As part of this research, make a determination of burn rate. This will let you know the cash reserves you need and how much is going to be leaving your business so you can plan for overhead and payroll.
Know Your Strengths
It sounds easy enough to know and understand your strengths, but will you still feel that way when there are challenges? Let your strengths be your competitive advantage and your differentiator.
Have an area of expertise where you offer something that no one else can.
No matter how tough things get, keep that strength at the forefront of everything you do.
Every transaction you make should be carefully documented, and you should keep meticulous records when you own a business. This includes conversations that you’re having with employees, vendors, and clients.
You want to keep records of transactions involving your taxes, the costs of operation, and sales.
Documents need to be managed with minimal errors because, first, you’re able to track where your money is going. You’re going to be able to make more informed decisions across the board when you can quickly see what’s going where.
You’re also going to reduce your risk of fraud and theft.
Prepare to Pivot
Finally, be prepared to pivot at all times. Maybe a pivot happens because of a change in the economy, or there could be a shift in market regulations.
Whatever it is, have a pivot strategy.
You should evaluate quarterly at a minimum to see where you’re at and where you might need to go.