No one wants to think about their business failing. However, the truth is that businesses fail all the time. In fact, according to Forbes, about 20% of small businesses fail within their first year, and 50% fail within five years. Therefore, the best way to protect your business is to be prepared for the worst. Here are five ways you can do that.
Have a plan
The first step to being prepared for the worst is to have a plan for if things go south. This may seem like an obvious step, but you would be surprised how many businesses don’t have a plan B. If your business starts to fail, what will you do? How will you cut costs? Who will you lay off? A plan ahead of time will help you make quick, informed decisions when tough times come. Here are some essential things that need to be on your plan.
Risk Mitigation
This is a process of identifying risks that could potentially damage your business and then taking steps to reduce the likelihood or impact of those risks. For example, if your business is heavily reliant on one client, what would happen if they decided to leave? Risk mitigation would involve finding other clients to help diversify your income stream.
Bankruptcy
Small businesses fail, that’s common, and it’s something that can happen to you. First, however, you need something that’ll protect your assets. That’s where a Chapter 7 bankruptcy lawyer comes in. Essentially, they will help you protect your assets, such as your home or car, in case your business goes bankrupt. This way, you won’t have to worry about losing everything you’ve worked so hard for if your business fails.
Both the idea of risk mitigation and bankruptcy should be a last resort when everything else has failed.
Diversify
One of the quickest ways for a business to fail is to have all of its eggs in one basket. What will happen if your only source of income is from one product or service if that revenue stream dries up? This is why it’s so important to diversify your income streams. By having multiple revenue sources, you’ll be much less likely to go under if one of them fails. Here are some great revenue sources for you and your business.
Stocks
Every business owner has their hands on stocks at some point. Stocks are known for their volatility, but they can be a great source of income if you know how to play the market.
Bonds
Bonds are often considered safer investments than stocks because they’re not as volatile. You’re essentially lending money to a company or the government when you buy a bond. In exchange, they agree to pay you back the money plus interest.
Mutual Funds
A mutual fund is a type of investment that pools money from different investors and then invests that money in stocks, bonds, or other securities. Mutual funds are a great way to diversify your portfolio because they expose you to multiple investments.
Build up your cash reserves
Another important way to prepare for the worst is to build up your cash reserves. This way, if your business does start to struggle, you’ll have some money set aside to help keep things afloat until you can turn things around. A good rule of thumb is to have enough cash reserves to cover 3-6 months of operating expenses.
Separate Your Finances
If your business starts to fail, the last thing you want is your finances to suffer. That’s why keeping your personal and business finances separate from the get-go is essential. This way, your finances will remain intact if things go south for your business.
Get insurance
Insurance is another important way to protect yourself and your business in case of failure (or any other unforeseen circumstance). Here are some essential insurance policies for your business:
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Liability insurance:
When you have customers or clients, there’s always a risk that they could get injured or their property could be damaged. If this happens, liability insurance will cover the costs of any necessary medical treatment or repairs.
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Property insurance:
This type of insurance covers any damage to your business’s physical property, such as your office or inventory.
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Business interruption insurance:
This type of insurance covers the costs of lost revenue and expenses if your business is forced to close due to a disaster. This is crucial for the pandemic.
No one likes thinking about their business failing—but it’s essential to be prepared just in case something goes wrong. By following these five steps, you can give yourself and your business the best chance at weathering any storm that comes your way.
