Whether you own a small business or you started a side hustle for extra income, you have to wear many hats as an entrepreneur. You’re also a marketer, a sales professional, and you might even have to deal with IT and customer service.
Running a lucrative business or side hustle is well worth the time and effort. However, if you truly want to be successful and protect yourself for years, it’s essential to have risk management strategies in place.
Most people understand the basics of risk management. But, if your business is also your livelihood, digging a little deeper into your risk management techniques should be a top priority.
With that in mind, let’s check out six essential risk management strategies for entrepreneurs. These strategies cover health, finances, and even customer relationships. It might seem like a lot to tackle, but you’ll be protecting yourself, your business, and your future in the process.
1. Maintain Clients During Times of Change
Change happens. Some people deal with it better than others, but it’s inevitable. There are some changes that will be out of your control, like dips in the economy, a natural disaster, or even a global health issue like the COVID-19 pandemic.
Other changes are more planned and positive, like business renovations or a new product launch. If you’re running a side hustle, for example, you might be required to undergo home renovations to keep up with certain rules and restrictions.
Of course, you don’t want your business to slow down or become stagnant just because you’re going through a transition period. Some of the best ways to protect yourself and maintain clients during times of change include:
- Keeping your employees informed of your plans
- Hiring professionals to help
- Setting boundaries for in-person visitors
- Keeping safety a priority
Most importantly, keep your clients and customers informed, no matter what is going on. Today’s average consumer values transparency and honesty. They want to foster relationships with the brands they frequent. You can build upon that by staying active on social media, sending out digital newsletters, and telling people in person what changes they can expect from your business.
2. Secure Yourself With Health Insurance
Health insurance is a necessity whether you run a business or not. But, when you’re solely relying on self-employment, it’s even more important. While it might seem a little overwhelming to have to purchase your own health insurance rather than receive it from an employer, don’t let confusion keep you from getting it.
As a freelancer or small business owner, you can’t afford to not be fully covered by insurance. High medical bills can be catastrophic if you experience an accident or major health issue. Even regular checkups can get expensive quickly without quality insurance, and you don’t want to skip those appointments.
Taking care of your physical and mental well-being as a business owner is so important. Regularly keeping up with things like immunizations, dental exams, eye exams, and physical checkups will help to ensure you stay in good health and can address any issues you might be dealing with before they become major problems. Being proactive about your health will reduce your risk of burning out or getting sick. Don’t let the cost of regular checkups be what keeps you from seeing a doctor. If you haven’t already started shopping for health care, now is the time to start.
If you’re not sure how to get health insurance on your own, especially as a freelancer, or if you’re running a side hustle, it’s not as complicated as you might think. The Affordable Care Act (ACA) established the Health Insurance Marketplace for self-employed individuals to purchase insurance coverage that meets their needs. It’s extremely helpful for freelancers and small business owners who need to prioritize their health and their finances. The only “issue” you might run into if you use the Health Insurance Marketplace is getting into the open enrollment period. Open enrollment begins on November 1st of each year, and you’ll need to enroll by December 15th to ensure you have full coverage in the new year. Thankfully, the marketplace has made it easy to choose from their Bronze, Silver, Gold, and Platinum plans, so you can find the right coverage based on needs and cost.
In addition to regularly seeing a doctor for your well-being, prioritize self-care. There’s no denying that starting a business on your own is stressful, no matter how rewarding it might be, too. Being proactive about your health has many rewards. Not only can it benefit you, physically, but it can make it easier to manage the stress of being a business owner. In addition to regular exercise, try things like:
- Meditation
- Mindfulness
- Journaling
- Yoga
Self-care looks different for everyone, but it’s about finding ways to reduce stress and promote your well-being every day. Regularly seeing a doctor is part of that, but what you do in between those visits matters, too.
3. Understand Your Taxes
Having a firm grasp on your taxes is another “hat” you might not have initially thought you’d wear as a business owner. But, understanding how to protect your assets will help with longevity and will reduce the risk of you losing everything you’ve worked so hard for.
Some of the best ways to protect your assets as a business include:
- Establishing agreements with employees
- Keeping your information secure
- Applying for trademarks and copyrights
- Signing confidentiality agreements
- Incorporating your business
You might also want to form a holding company. While that might sound overwhelming, at first, a holding company is nothing more than a legal entity created to hold assets and businesses. Once it’s formed, you don’t really have to worry about the day-to-day operations the way you would with a typical business.
What does that have to do with taxes?
A holding company can be used to reduce or defer your taxes. It will safeguard any corporate assets you might have. Plus, if the holding company controls at least 80% of your business’s stock, you can use it to take advantage of tax consolidation benefits.
If you’re not as comfortable with the financial side of your business as you want to be, don’t feel like you have to tackle your taxes alone. Consider working with an accountant or financial professional to help you cover the basics. If you’re interested in forming a holding company and protecting your assets further, contacting a business law attorney can put your mind at ease. Not only can they help you minimize your taxes, but they’ll work to protect your business and your assets as you grow your business. It’s a worthwhile investment that you can rely on for years to come.
4. Consider Additional Types of Insurance
We touched on the importance of personal health insurance, but sometimes your business might need extra coverage. That can be especially true if you’re running a lucrative side hustle and want to protect yourself and everything you’ve worked for.
How do you know if you need extra coverage? It really depends on the different risks presented within your business. For example, if you run a bakery at a brick-and-mortar location or out of your home, what if someone has an allergic reaction to one of your creations? What if you’re running an errand for your business and get into a small accident? What would happen if a fire, flood, or other disaster ruined your inventory?
Still not sure if extra coverage is necessary? Consider some of the following to determine if your business has risks that should be covered.
- Do you use your vehicle for your business?
- Would the loss of inventory bankrupt you?
- Do you work with children or animals?
- Could an employee get hurt or sick while working for you?
Obviously, you’re never going to be able to determine every possible risk for your business, nor can you completely avoid accidents and failures. If you work in a higher-risk environment, like manual labor, getting extra coverage should be a no-brainer. But, even industries that might seem safe and secure can often benefit from extra protection.
Most small business owners don’t have a huge emergency fund. It’s hard enough to gather up initial funding to start a business, let alone have “extra” saved up – especially if you’re still relatively new. You might have a small cushion if disaster strikes, but it’s likely not nearly enough to cover something like a hospital stay for an employee or customer, or the repairs needed because of a natural disaster or fire. While you might be able to take out a loan or even rely on crowdfunding for a while, having extra insurance will make it much easier to get things up and running again quickly. Consider talking to an insurance agent you trust to determine the type of insurance that could be most beneficial to your business. Not only do you want coverage that protects your employees and customers, but you want something that will allow your business to keep going and find success again if something goes wrong.
5. Fulfill State Requirements
If you run a small business, you likely had to initially decide how you were going to operate. The IRS requires several structures, including sole proprietorships, partnerships, LLCs, and corporations. You also undoubtedly had to build your business around specific laws, regulations, and standards to get it up and running. While setting your business up the right way can be a bit of a headache, at first, it’s worth it to ensure you’re protected and following all of the rules implemented by your state.
However, it can be different for entrepreneurs who work out of their homes, or people running a side gig on their own. You might think that you’ll be able to fly under the radar, especially with a side gig, but that’s a risk you don’t want to take. If you want to be taken seriously as a legitimate business, no matter how small, make sure you understand local, state, and federal laws designed to protect you and your work.
For example, if you sell baked goods or other food items out of your home, it’s essential to make sure you’re covered should someone get sick or have an allergic reaction. Each state has different Cottage Food Laws designed to keep both consumers and the entrepreneurs preparing the food safe. Every state varies, but the types of food typically allowed under the Cottage Food Law include:
- Baked goods
- Dry mixes (cakes, cookies, dry cereals, granola)
- Jams and jellies
- Candies
You might have to undergo an inspection of your home kitchen or receive a permit from your local health department to legally sell your products. Contact your state department of public health to learn more about the specific requirements you’ll have to abide by. Or, check out the requirements online. While you might be able to get by without an inspection or permit, it’s a risk every time you sell something. Don’t allow the opportunity for a shut-down or put yourself at risk of legal trouble. It’s not difficult to get the certifications you need with just a bit of research, planning, and communication.
6. Practice Good Financial Management
No matter how passionate you are about what you do, the ultimate goal of every business is to make enough of a profit to be successful. After all, you don’t want to call it quits after one year because your finances weren’t in order.
Sometimes, despite your best efforts, you might end up not making enough to keep going because of certain issues that seem out of your control. Even if your business is successful on the surface, you could end up “losing” money if you don’t know how to manage your finances appropriately.
Start with taking a look at your marketing strategy. Your go-to strategy should include research and planning, development, a strategic roadmap, and ensuring a positive customer experience. Make sure you understand your audience and what they’re really looking for from your business. Consider different avenues of marketing, including social media and SEO. Most importantly, don’t be afraid to humanize your brand, no matter how small it might be. As a small business or side hustle, you have the unique advantage of really getting to know your consumers. Don’t be afraid to engage with them regularly.
In addition to maximizing profits with marketing, you can practice good financial management by consistently monitoring your financial position.
Even if you have to hire someone strictly to keep track of your finances, it’s a worthwhile investment that will protect you from ending up in danger. Monitoring your finances and understanding your day-to-day costs are crucial components of a financial management strategy.
Starting a small business always comes with risk. Even if you’re starting up a side hustle for extra income, there are no guarantees everything will always go as planned. While you might not be able to prevent every problem or immediately find a solution for every risk, there are clear steps you can take to manage your risk and protect yourself and your business.
Keep these strategies in mind and consider how they might future-proof your business from potential risks. By taking the steps now to keep your small business or side hustle safe, you stand to have a brighter, more successful future (with a lot less stress) as an entrepreneur.
