By Zamantolo Fakudze
Business owners face several known and unknown risks that could derail our growth. Having a business plan, watching your cash flow and getting the right types of insurance in place are all important ways to reduce business risk. There are also numerous legal pitfalls to be aware of.
- Create a business plan
business plan details how your business will run and provides you with a framework for growth. While it doesn’t have to be set in stone, it’s a good idea to outline how your business will develop. This helps to inform your strategy. You might look at the first six months to a year or you may be looking at a five-year plan. You may even be setting the objective of getting the business ready for sale. The plan should detail how you intend to make money and grow the revenue of your business including all the various strands of your strategy such as sales, marketing, pricing, operations and suppliers. The plan can also help you detail particular milestones, making informed decisions about the next steps; for example, do you need business loans or do you have any staffing requirements? Are you looking to secure funding for your business or bring in experienced business partners? Having a clear plan will increase the confidence of anybody coming into the business.
- Watch Your Cash Flow
Watching your cash flow and funding during the early stages of your business can help you avoid one of the most common risks; running out of money. You may need to pay suppliers, and staff, for systems and equipment and even things like research and development. All of this requires cash flow. Understanding the cash flow of your business can help you make better decisions and reduce risk when it comes to spending money. It can also impact relationships with suppliers if you are not able to pay them promptly.
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- Insurance against things going wrong
Insurance helps protect small businesses by taking on some of the financial burdens if things go wrong. From defective stock and workplace injury to business interruption and cover for your commercial property. The right insurance can cover you against unforeseen circumstances so it is important to seek independent advice on what types of insurance your business will need.
- Contracts with partners, suppliers and employees
Contracts help you to limit the liability your company could face with clear terms and conditions between you and suppliers as well as clients and employees. In future, you may potentially face claims for damages or disputes with suppliers and employees so having the right contracts in place can help you reduce the risk and potential damages caused.
Employment contracts help you build the right culture for your business and provide security for employees as well as set out what you expect them to contribute. While B2B contracts do not remove all of the risk involved in dealing with other businesses and suppliers, they can offer you significant protection further down the line against any claims that you have not fulfilled your obligations. B2B contracts can also protect your interests, creating clarity between all parties involved.
- Protect your intellectual property
Be careful who you share sensitive information about your business with. Entrepreneurs are sometimes so keen to secure funding that they risk sharing information with the wrong people and at the wrong time. Without a patent or the right contracts in place, they could find that there are no copyrights, leaving other parties free to pick up an idea and run with it. This could mean bigger businesses with deeper pockets could quickly surpass your business growth, using an idea that you thought was yours.
- Protect confidential information
You need to be careful about how you handle customer data and how you tell customers you will be communicating with them. Not handling data correctly can result in hefty fines, not to mention damage to your reputation. It’s not just customer data that you need to consider. You need to think about how you handle employee information from email communications to personal data. This becomes particularly important if you ever face an employment tribunal. Confidential information belonging to your business could be protected by NDAs (non-disclosure agreements). You should also be aware of the limitations of non-disclosure agreements, for example, it is often difficult to prove a breach of confidentiality.
You should do everything you can to only disclose necessary information and limit the number of individuals who receive this information.
- Get help early on
Accountants, HR professionals, business advisors and of course commercial legal advice can all be valuable assets throughout the life of your business so you don’t become victim to the various legal pitfalls that take many businesses by surprise. You need to be aware of the legal services that small businesses need to help them reduce risk and thrive, from setting up and structuring your business correctly, to b2b contracts and seed funding.
Zamantolo Fakudze is a SEDCO Communications Officer