7 Ways Business Owners Can Protect Themselves Financially

As a business owner, you face a great deal of uncertainty. To a large extent, your ability to meet your business objectives is based on your ability to identify risks and take actions to reduce their impact.

Succeed in protecting your finances, and your business can grow and thrive. Fail to avoid losses, and you’re likely to experience the opposite. 

But what does “protect yourself financially” mean? And how do you accomplish that goal? Read on for details. 

Tips For Managing Your Business Finances

There are several ways to reduce the risk of your company experiencing adverse financial events. These actions cover the spectrum from steps you should take before you launch your business to things you should do to maintain positive momentum. 

Specifically, you should:

1. Create A Business Plan

Having excellent products or services isn’t enough to succeed in business. Many of your competitors can make that claim. You must have a strategy that maps out how you’ll use your financial resources to support and grow your operations. Countless companies fail every year because they run out of capital before they’re generating revenue. 

2. Obtain Small Business Insurance

General liability insurance is an example of a policy that can protect your company. It covers the cost of your legal defense and court-awarded damages if someone sues you over an injury suffered at your place of business, damage caused by your employees, etc.

There are several other types of business insurance that you should learn about, as well, including professional liability, commercial auto, cyber, workers’ compensation, business owners policies, etc.

For a few hundred dollars annually, in many cases, you can be protected from lawsuit expenses that total in the hundreds of thousands or more. 

3. Be Proactive In Addressing Liability Risks

To obtain the right business insurance, you will have identified the types of risk you face. While those policies provide financial protection if an incident occurs, it’s much better for everyone involved if incidents don’t occur.

Actions as simple as mopping wet floors to prevent slip-and-fall accidents or shoveling and deicing walks after a winter storm reduce your risk. You should also educate your employees on safety best practices for your industry.

If employees drive for work purposes (to make deliveries, meet with clients, etc.), you should have written rules on how company vehicles should be operated, including a strict ban on texting while driving. 

4. Collaborate With An Attorney On Your Business Contracts

It’s critical that all business interactions with vendors, business partners, etc., are clearly defined. Your business is less likely to be sued when everyone is “on the same page,” and it’s clear from a contract that you have no liability in a particular scenario.

Remember: The goal isn’t to win lawsuits but to prevent them. Even if a plaintiff’s case is baseless and you prevail, your company still must defend itself. 

5. Maintain State-of-the-art Cybersecurity

Some of the largest unexpected financial losses companies experience today result from cyberattacks. That includes everything from the cost of notifying customers of a breach and data theft to audits to determine how a hack occurred and steps to prevent future incidents.

And if you think only large companies get hacked, you should reconsider. Small companies are frequently the target of cybercriminals. That’s due, in part, to hackers assuming those organizations will have substandard cybersecurity. 

6. Maintain Your Assets

Lawsuits and cybercrime aren’t the only ways to lose money in business. Failing to keep your computers, infrastructure, equipment, and other assets in working condition can be a large (and largely unidentified) financial drain.

That’s especially true when failing to adhere to the terms of a warranty voids it, and you’re required to pay for repairs or replacements. 

7. Have Emergency Cash Reserves

Some types of incidents have a range of potential financial damage. For example, if a critical piece of machinery dies, having capital available to replace it minimizes the expense. On the other hand, the cost can be much higher if you don’t have a cash reserve and have to rent equipment until you can afford to buy it.  

It Takes Money To Make Money

The saying that it takes money to make money is true. Consequently, preventable losses hurt your business in two ways. The initial damage is the cost of the loss itself. But your business also misses out on all the good that money could have done. 

For example, imagine you don’t adequately protect your computer network from unauthorized access and don’t have cyber liability insurance. If data theft occurs, you may have to spend tens of thousands of dollars to resolve the issue.

Now envision not suffering that loss and instead putting the money into a marketing campaign that generates $75,000 in sales. That’s a significant swing!

So, protecting your finances is critical. Fortunately, you can take steps today to do exactly that.