Launching a new business is all about seizing opportunity. However, it’s also about taking on risk. From legal peril to financial calamity, there are countless ways in which businesses can land in jeopardy. And while there’s no way to completely exempt yourself from these risks, there are steps you can take to mitigate risk.
In fact, risk mitigation is a vital aspect of business leadership. In this post, we’ll consider some of the top options for safeguarding your venture, from investing in the right cybersecurity measures to erecting a sound legal bulwark.
8 Ways to Safeguard Your Business and Mediate Risk
1) Start with a risk assessment.
One of the best ways to keep your company safe from risk is to take inventory of where your greatest vulnerabilities lie.
Different businesses may have different risks, but there are a few common links. Consider these sources of peril, which most business ventures face:
- Regulatory non-compliance and related penalties.
- Lawsuits and litigation.
- Public relations snafus and reputational damage.
- Cybersecurity breaches and data loss, which can cause further reputational damage.
- Natural disasters and property damage.
Being clear-eyed about the risks your business faces is vital for putting the right safeguards in place.
2) Choose the right legal structure.
Another important way to safeguard your business is by selecting the right legal structure. The legal structure you choose for your business can have a range of implications, from how you pay taxes to how you administer payroll. More to the point, it determines the extent of your legal liability.
For many business owners, the best option is the Limited Liability Company, or LLC. When you register your business as an LLC, it allows you to separate personal and business interests, meaning you can significantly curtail personal risk exposure. This is invaluable should your business get hit with litigation or major financial loss.
Note that the process for LLC formation varies by state, so it’s always important to research state-specific guidelines, e.g., the requirements to form an LLC in Texas.
3) Invest in the right insurance coverage.
Insurance is an essential component in mitigating business risk. The type of coverage you need can vary by industry and according to the size of your company, but a few specific types of insurance you might want to consider include:
- General liability insurance
- Errors and omissions insurance
- Property insurance
- Workers comp insurance
An independent insurance broker can help you make wise decisions about the extent of the coverage you need.
4) Implement cybersecurity measures.
Many of the biggest risks your business faces pertain to cybersecurity threats. A hacker can cause data losses that disrupt your daily operations, or they can leak sensitive customer data that results in legal penalties and vast reputational damage.
The solution? Ensure a robust commitment to cybersecurity measures. Some specific examples include:
- Make sure you’re using firewalls, anti-virus software, and other important tools.
- Keep all of your software up to date, especially with respect to security patches.
- Implement access controls, ensuring employees and vendors can access files and networks only on an as-needed basis.
- Ensure that your employees are fully trained on cybersecurity best practices, including phishing awareness and password hygiene.
Cybersecurity is an essential way to beef up your business and to minimize the risk you face.
5) Put other legal safety nets in place.
We’ve already mentioned the importance of registering your business as an LLC. Beyond choosing the right business structure, there are other legal resources that can help you minimize risk exposure.
A business attorney, mentor, or coach can share specific recommendations, but a few general options to consider include:
- Contracts (for employees and/or for vendors and suppliers)
- Non-disclosure agreement
- Terms of service
- Operating Agreements (to outline relationships between you and your business partners)
6) Create a disaster recovery plan.
Even with your best efforts to minimize risk, catastrophes can still happen. What’s important is that you have a recovery plan ready to implement, minimizing any damage done.
Specific considerations for a disaster recovery plan include:
- Communicating with customers and/or vendors about what happened.
- Putting out a public statement and handling media inquiries.
- Seeking legal counsel (as needed).
- Ensuring business continuity through data backups, etc.
Develop a disaster recovery plan but also review and revise it regularly, ensuring your plan is fully up-to-date with respect to your business’ risk exposure.
7) Educate employees on the risks your business faces.
Employees can be either your biggest source of risk, or your strongest protection against it. It’s mostly a matter of training. Ensure you’re equipping all of your team members with risk awareness, and with knowledge about the role they can play in safeguarding the company.
For example, regular training sessions about phishing and ransomware can massively reduce your vulnerability to cyberattacks.
8) Conduct regular audits and assessments.
No matter what you do to minimize business risk, it’s important to avoid the set-it-and-forget-it mentality. Every strategy you put into place needs to be evaluated on a regular basis and brought up to date.
Whether this is recognizing new vulnerabilities to your IT network, understanding a shifting regulatory environment, or simply being alert to changing consumer sentiments, it’s important to be mindful of all the ways in which your business risk profile can evolve over time. Your plan needs to evolve accordingly.
Make Risk Management Key to Your Business Strategy
The bottom line: You simply cannot go into business without courting risk. Thankfully, there are plenty of practical ways to be more alert to your risk level and to keep those vulnerabilities in check.
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