Flexible monthly business insurance
Welcome to the first article in our startup series – where we breakdown business insurance for startups including why it's needed, the different types of risks startups face and the types of covers startups need. To view the next in the series, scroll down to the bottom of this article.
There are two types of risks when starting a business: the risks you take and the risks that could happen to you. As a new business that’s making mistakes and failing fast to test and learn, the chance that you’ll experience these risks is greater. And while you can’t predict what will happen, it’s good to be aware of these risks so you can do what you can to mitigate them.
This article takes you through what these risks are and offers tips on how best to deal with them.
The 5 risks of starting a business
The risks that you take will be driven by you and these will be different for every business. But here are the five main risk categories for every business.
1. Financial risk
This is seen as the biggest risk when starting a business. Unless you’re completely self-financing your operation, you’ll need to secure funding. Taking a large injection of cash either from investors or a business loan is a big risk that poses many questions: how can you best use the money to propel your business? How many years will it take to pay back?
2. Product risk
Creating a new product or service that people have never seen before is bold. It involves careful planning to predict how people will respond and there’s while focus groups and surveys can give you an idea of how people will respond, there’s no real way to tell if anyone will buy into it. If you’re a product-led business, the main risk lies in the development of your product and the logistics of your stock. Where will you source it from? Where will you store it? And will you be able to sell it once you’ve got it?
For service-led companies, your risk lies in marketing your service – condensing it down so that customers can quickly grasp what you do and either get on board or move onto something else.
To help control these questions, you need to speak to various suppliers, formulate every detail of your product, such as your pricing, and start thinking about your messaging.
3. Market risk
Once you have your product established, it’s time to enter the market. This involves deep research, introspection and testing. You’ll have to identify which routes to market your product or service suits, build strategies to execute this and assess the competition.
Here are some articles that could help:
4. Strategic risk
One small change can shift the way a small business works. And you’ll be making thousands of these decisions in the early stages. While you can start out by making decisions on behalf of the company (which is a risk in itself), as you bring more people on board, you won’t have time to oversee all of the decisions being made.
In this case, it’s important to arm yourself for all the possible outcomes before making a big decision yourself. Then, keep a good level of transparency between you and your staff so you can lump together, research and prepare for the outcome. You could even decide on a formalised decision-making process to ensure a consistent level of scrutiny, which is important at the beginning.
5. Team risk
No one can build a successful business on their own. From suppliers and service providers to investors and employees, you’ll need to involve other people in your venture and choosing the wrong people can do some serious damage.
Anyone who comes into your business increases your liability, both in terms of their actions and decisions as well as their involvement in any potential incidents or accidents. You’ll want to think about whether you need a co-founder and whether this would benefit your business as well as who your first hires should be based on what your business does.
We talk about the pros and cons of bringing in a business partner as well as tips for hiring a team in our big guide to entrepreneurship.
Potential risks that could happen to your new business
1. Security and data breaches
Cyber-attacks and data breaches are among the biggest risks facing startup businesses, particularly if you’re storing and processing customers’ personal or financial data. Hackers can cause catastrophic damage to your systems, your business reputation and your income.
Improving your cyber security helps minimise the damage. As a startup director, you should stay up to date with all the laws and regulations that affect your sector, while ensuring you, your colleagues and staff remain compliant.
Some tips to improve your cyber security as per GDPR regulations include:
- Only hold data that you need
- Ensure the data is kept up to date
- Get your customers’ permission in writing for you to hold their data
- Anonymise and encrypt personal information wherever possible
- Carefully vet all of your suppliers to ensure they’re also compliant with the rules and regulations
It’s also recommended to create a cyber security policy and train your staff to embed good practices, including dos and don’ts on handling sensitive information, password management and identifying suspicious emails. Support this with regular communication on what different attacks look like – particularly social engineering – and how to respond in the event of a breach.
You can also implement cyber hygiene practices including:
- Ensuring your network is encrypted
- Managing the security options in your Wi-Fi settings
- Keeping software updated with the latest patches
- Keep devices password protected or install a cloud-based password platform
- Ensure any card payment systems are PCI DSS compliant
You might also want to consider cyber insurance which is designed to protect you from data theft and breaches.
2. Customers giving bad reviews
As a new business, a bad review can cause reputational damage with the potential to put a dent in your sales and lower consumer trust. To avoid this, you should encourage feedback among your customers, and show gratitude for both good and bad reviews as this can give you both a boost and a learning opportunity. Check out our guide to getting better reviews.
You could also create a social media policy that defines how your employees should speak to customers and how they should conduct themselves on their social media if posting on behalf of the company.
3. A fluctuating economy
Changes in interest and inflation rates, as well as dips and peaks in consumer spending, have the power to disrupt your cash flow. As mentioned above, you should aim to plan for such eventualities with some backup funds and a strong plan of action. Be prepared to pivot and consistently come up with solutions to potential issues that arise from economic downturns. This could even include changing your whole product idea at the drop of a hat.
4. Accidentally stealing someone’s idea
You’ve just launched and a company contacts you to say that you have stolen their logo and wants to enter into a lawsuit. A professional indemnity policy would help pay for the legal fees that would be needed to defend your business. This can be a valuable lifeline for businesses that don’t have a lot of cash to spare.
5. A customer or employee has an accident
When you start a business, you’ll likely be plunged into endless meetings with clients or open your doors to an array of customers. This heightened level of interaction leaves more room for potential accidents to occur. That’s just science.
To avoid potential accidents from happening, you should get your employees clued up on health and safety regulations, ensure a thorough level of training and only invite customers and clients into your business knowing they’d be safe to do so.
Unfortunately, we can’t foresee accidents. So, if a customer trips over and hurts themselves or an employee hurts themself after not receiving some proper training to work a piece of equipment, it’s important that you have cover in place to protect yourself. Public liability insurance and employers liability insurance are essential covers that most businesses should consider.
6. A burglary disrupting your business
Many people think that because you’re a new business, you’re less likely to be targeted by robbers. But on the contrary, if you’ve just bought a bunch of new tech such as laptops, computers, phones, POS systems as well as stock, this would give a burglar ample reason to target you.
It’s recommended to up your security where possible and keep your tech in secure places, but there are also several types of cover that can protect your things and pay for a replacement if your items get damaged or stolen. These include business equipment insurance, office insurance and business contents insurance.
One of the best parts of creating a startup is the unpredictability of the risks you’ll take – it’s exciting to see where those leaps will land you and learning to roll with whatever is thrown at you will teach you so much. But for the things we can’t plan, getting the right business insurance can help you get back on your feet if something does happen.
We hope you enjoyed the first part in this series – to learn more, check out the second article 8 reasons why startups need insurance.
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