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7 Ways to Protect Your Small Business from Risk
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February 19, 2024
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Whether you’re starting your new business, or your company has been up and running for a while, protecting the business you have worked hard to build is essential.  However, in the excitement of managing a small business, many entrepreneurs may skip this very important step.

Here are seven ways you can protect your small business from risk.

1. Choose the right form of business.

Operating as a sole proprietorship is the default business structure for a one-person business. But while this option may be easy, it's not necessarily the best choice to protect your business. For one thing, the sole proprietorship structure doesn’t shield your personal assets. That means if a customer decides to sue you or a vendor demands payment that your business can’t afford, your savings, home and other assets could be fair game.

Depending on your future goals for your business, a corporation or limited liability company (LLC) could be better for you. Learn more about how to choose the right form of business.

2. Get legal help.

For some basic legal matters, an online legal resource can provide helpful guidance and tools, such as Rocket Lawyer, Nolo or LegalZoom. You’ll typically find:

  • Access to information.
    The specifics vary by the legal websites, but most include articles, blogs, checklists, templates and legal forms including non-disclosure agreements, business contracts and LLC operating agreements. This information can help you understand your legal rights and obligations and provide guidance to help you navigate your legal needs.
  • Legal tools.
    These kinds of legal websites can offer tools such as business formation documents, trademark, copyright and patent information, as well as annual reports that you’ll need to file and more.
  • Helpful compliance resources.
    You’ll typically find sample privacy policies, terms of service and website cookie notices.

However, there may be times you need a lawyer to represent you. If that happens, here are some steps to follow:

  • First, identify the specific legal issues your business is facing. Do you need help with business formation, contract review, employment law, intellectual property or something else?
  • Ask your friends, family and business associates for recommendations for lawyers who specialize in the area of law you need help with. Check with your local bar association or chamber of commerce for referrals.
  • Once you have a list of potential lawyers, schedule interviews to learn about their experiences working with small businesses, expertise and fees. Ask about their availability and who in their office will handle your case.
  • Be upfront about your budget. If cost is a concern, discuss payment options — many attorneys have affordable solutions or may be able to refer you to a less expensive colleague.

3. Find an accountant.

Even if you plan on doing business bookkeeping yourself, getting a good accountant is worth the price. Who has time to keep up to date on tax law changes? You sure don’t — but accountants do. Not only can they ensure you take advantage of any tax breaks, but they can also provide valuable advice on how to structure your business, the best way to finance business expansion, and how much you should pay yourself.

During your startup phase, an accountant can help you assess your financing needs, advise whether your financial projections are realistic, and help you assemble documentation and a presentation that will convince investors and lenders to finance you. 

4. Buy business insurance.

Most businesses need general liability insurance, which protects the business from a variety of claims that can arise from business operations. A business owner’s policy combines general liability with property coverage and is a popular solution for many small business owners. If you provide advice or professional services to customers, you may also need professional liability insurance, also known as E&O (errors and omissions) coverage. If you use a vehicle for business purposes, such as traveling to customers to perform services, transporting materials or people or delivering products, you will likely need commercial auto insurance. Depending on which state you operate in, you may be required to have workers’ compensation insurance. Other insurance products to consider include employee life insurance, business interruption insurance and cyber insurance. Learn about protecting your business from common and uncommon risks in Progressive’s Prepare and Protect Guide. An independent agent in your area can also help you determine which coverages will best serve your business.

5. Be smart about new customers and clients.

Small business owners can face cash flow issues due to late or unpaid invoices. Fortunately, there are some things you can do to mitigate the risk.

  • Start with a contract. A written contract outlines the terms of your agreement, including the scope of work, the price, the payment terms and any deadlines. Considering having an attorney review your master contract template before customizing it for clients.
  • Set up a payment schedule with milestones, which are specific achievements when payment is due. Both you and your client must agree to the payment and deadlines in writing. Payment milestones help ensure you get paid on time and assure the client that you will fulfill your responsibilities before they pay you. Some examples of payment milestones:
    • When the contract is signed. (Your deposit.)
    • When the work begins.
    • Interim milestones. These will vary by the type of business you own. For example, for a home remodeler, the milestone could be finishing one room; for an accountant, it may be completing an audit; and for a graphic designer, it could be developing a specific number of website pages. 
    • When the project is finished.
  • Send invoices promptly. Send an invoice for every payment milestone. The invoice should be clear and concise and include all relevant information, including the date, invoice number, contact information and payment terms. Remember to thank the customer for their business.

6. Protect your employees.

From an electrical fire that destroys your inventory to a natural disaster like a flood or hurricane, disaster can strike your business at any time. That’s why having a disaster plan for what you will do in an emergency is important. A good disaster plan protects both your business and your people. Create a plan and assign responsibilities for how to get employees and customers out of the building safely, what to do if a disaster keeps you and employees from getting to your business, and how you will keep running even if you can't get to your physical location.

Ready.gov, an official website of the U.S. Department of Homeland Security, offers business disaster toolkits for hurricanes, earthquakes, flooding, power outages and other types of hazards.

7. Protect your business data.

Cyber threats are on the rise, and small businesses are frequent targets. To protect your business, start by backing up your company data and documents and storing them securely. A cloud-based file storage solution keeps your data safe off-site and accessible no matter where you are. To protect your business from cybercrime and hackers, install appropriate firewalls, use business-grade computers and antivirus software, and train your employees in cyber security measures, such as creating strong passwords. SCORE’s Small Business Guide to Cyber Security can help you get started.

Your SCORE mentor can help you determine additional ways to manage risks and protect your business.

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Progressive Commercial Insurance

With over 50 years of experience, Progressive Commercial Insurance offers a full range of business insurance products featuring competitive rates and first-class service. They offer customized insurance solutions for both heavy and light commercial vehicles, as well as business insurance coverages including general and professional liability, workers’ compensation, business owners’ policies and more. Progressive is a Fortune 100 company and trusted by thousands of small business owners to protect their livelihood.

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