Sure-Fire Ways to Reduce Risk for Your New Business
If you are a new business owner, congratulations! You’ve decided to take the plunge in making yourself your own boss, and you’re ready to forge your own path. As you’ll soon find out, being a business owner is a big job. It can feel like you are juggling several roles all while trying to make time to solidify and grow your business.
At first, this can seem overwhelming. However, don’t panic. You’re not the first new business owner to feel like you have too many tasks on your plate. There are a few things you can do to help yourself feel less overwhelmed about your new venture. Reducing risk is one sure-fire way to ensure that your business can grow without running into any major roadblocks, saving you several hours and headaches.
Here are some salient tips to help you reduce risk for your new business.
#1 Make Sure You Have the Proper Insurance
Insurance can be somewhat confusing, especially if you are unfamiliar with what kind you need. Because insurance doesn’t make a one size fits all policy, it can sometimes be difficult to understand what policies you need in order to reduce risk for your new business. Start by looking online to see if anyone in your field has written any articles on what insurance is necessary to have in your line of business.
Likely you will come across some articles that can point you in the right direction. Search queries such as “necessary insurance for _________ business owners” should point you in the right direction. When searching online, always check to see if the site looks credible and if the author has any experience in your field. You can see this by searching for the author on LinkedIn and seeing his or her current and previous positions.
Next, go to the city hall office of the city or town your business resides in to confirm what types of insurance are necessary for your business to have. Try asking to speak with someone who has experience granting permits for new businesses. Likely the receptionist won’t have much experience with this and might only give you a minimal amount of information. After getting a bit more information about the necessary insurance you will need you can decide what kind of optional insurance you might want to add to your policy in order to further reduce risk.
You can choose optional coverage on things such as life insurance of the business owner, digital insurance (if you get hacked by online hackers), management insurance (if your management staff makes a mistake), event insurance for your grand opening, as well as disability and sickness insurance that will pay out for employees in case of a worker’s inability to work due to disability or sickness.
Optional insurance might seem unnecessary to tack on to your policy when you are first starting your business, however, it will help you reduce risk as a new business owner and could potentially save you thousands of dollars in the long run if something doesn’t go to plan. Sign up for a trial plan, or a short-term plan if possible, that way you can test out different kinds of optional insurance policies and decide which ones you want to keep and which ones you want to get rid of at the end of your trial period. When starting out, it’s better to be safe and protect your investment.
#2 Only Agree to Short-Term Commitments
Because your business is so new, you want to plan for the short-term first. You’ll see that when starting out, you might not have the capital to purchase some things outright. This can make you want to put everything on credit and worry about paying it off at a later date. This way of thinking can be detrimental to your new business especially if you are the sole investor. Planning for the best-case scenario is a nice thought, but when starting your first business, it’s just not practical.
Especially when thinking about how you want to finance your company, stick to this model. If possible, try to start your business using an equity financing model instead of debt financing in order to mitigate risk. An equity financing model involves borrowing money from investors in exchange for a part of your company, while debt financing requires taking out a loan from the bank in your name. The main difference between the two is that if your business fails, the equity financing model doesn’t require you to pay the investors back while debt financing requires you to pay back the loan in full plus interest. Using an equity financing model when financing your company is a great way to mitigate risk early on.
If you need to buy cars for your employees, start by leasing the vehicles in order to reduce the risk of buying several cars outright only to have them lose a lot of their value if you have to sell them should your business wind up. Additionally, making agreements with suppliers and freight companies should only consist of month-to-month contracts. Likely suppliers and freight companies will give you a trial period to see how the relationship works before locking you into a contract. Take advantage of these offers and use trials as a way to test out different suppliers before deciding on who to do your business with. Doing this ensures that you don’t have to pay out on a contract you cannot fulfill if your company goes under.
When starting out, in order to reduce the risk of having to pay severance packages for employees by offering long-term contracts, stick to offering short-term employment or at-will employment. Using internship periods of 30 days will allow you to test out your new employee with considerably less risk.
If you need immediate full-time help and can’t afford to risk losing an employee by offering them an internship period, have them sign on as an at-will employee. An at-will contract states that both the employee and employer are both entering into the agreement at will and either party can walk away from it at any point without repercussion. Having employees sign an at-will offer can also protect you if the relationship turns sour and you have to fire them.
#3 Create a System of Checks and Balances
In order to further reduce risk in your new business when it comes to the operations of your company, create a system of checks and balances. It’s important when starting a business that you have people on your team that you can trust to help propel your business to success. However, you should take necessary precautions with all employees, no matter how close you are to them, in order to reduce risk.
Creating a system of checks and balances consists of creating several databases of information and only allowing one or two employees to have access to each database. This way, all important company information is not solely in the hands of one employee or is not in the hands of all employees.
Creating a system of checks and balances is also a good way to ensure that each employee is responsible for their own tasks and recording them properly. Having a way to track the progress of your employees is a good way of keeping tabs on what your employees spend their time on at work as well as limiting company information that they have access to.
A good way of keeping track of who has access to what on your team is by using a digital password manager. A digital password application manager is an extension that can be added to your web browser or an application that can be downloaded to your computer that helps securely store your company’s passwords all in one place. You can give access to certain account passwords through the application instead of giving them the password outright. This can help prevent employees from making changes to one of your accounts. A tool like this essentially auto-fills passwords, preventing employees from ever seeing account passwords.
If there is ever a discrepancy in your books, using a check and balance system will immediately identify who had access to the database. This will ultimately reduce risk by deterring employees from engaging in illegal or immoral behavior with sensitive company information.
#4 Hiring the Right Employees
Another way to reduce risk for your new business is hiring the right employees. To ensure you hire the right candidates for your new business, start by recruiting efficiently. Ask around to your friends and family to see if they know anyone that could be a good fit for the new role. Having someone refer an employee to you is a good opportunity for you to know and trust the people that are helping you start it.
If you are unable to find someone within your network, try posting the position to free online job boards. Sites like Google and Indeed will allow you to ask pre-screening questions that will help you quickly eliminate applicants that don’t have the qualifications you are looking for.
Next, interview your candidates. In order to reduce risk when interviewing, be sure to comply with your country or state laws on what can and cannot be asked during an interview. Come prepared with hard-hitting questions that will help you decide who is the best fit to help carry out your new business mission. Be direct when asking about skills, values, and competencies in order to get the most authentic answer from your candidates.
Once you successfully interview your candidate pool, be sure to check their references before making an offer. Because managers eliminate 21% of job candidates from consideration after checking their references, it’s important to remember that calling a candidate’s references is an important step in ensuring they are a good fit and a trustworthy employee for your company. This will help you reduce the risk of hiring someone who looks good on paper and can interview well but doesn’t have any credible sources to back it up.
In all, reducing risk as a new business owner can seem like a daunting task. There are several ways to try to keep risk low, however, if you start by making sure you have the proper insurance, only agreeing to short-term commitments, creating a system of checks and balances, and hiring the right employees, you are on the right track to knocking out some of the big ways to reduce risk.
Samantha Rupp holds a Bachelor of Science in Business Administration and is a contributing editor for 365BusinessTips.com. She lives in San Diego, California and enjoys spending time on the beach, reading up on current industry trends, and traveling.