From data to finances, here’s how to keep your new business bullet-proof.
4 min read
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More than half a million new businesses are started each month, but unfortunately, the number of businesses shutting down is also on the rise. To keep your small company from failing, there are four important measures of protection that no startup can afford to overlook.
Three-quarters of businesses in the U.S. are reported to be underinsured. Many small business owners attribute lack of warranty and insurance to financial constraints, but having no contingency at all can cost several times more than monthly premiums when disaster strikes. Besides, there are several affordable insurance policies and packages designed specifically for small businesses. And as Freshbooks VP of Strategy and Entrepreneur contributor Matthew Baker notes, using personal insurance to protect your small business is like having no insurance at all. Where a business policy protects against losses caused by the company, employees and third-party lawsuits, a home warranty only covers your home and costly repairs. Comprehensive small business plans should cover everything from worker’s comp to life insurance.
Related: 4 Steps to Better Protect Your Ideas
Startups greatly underrate the risk of falling victim to a cyber attack and having their data breached. This is particularly so for companies that handle very personal information, such as fintech companies handling customers’s financial data. Verizon’s Data Breach Report for 2018 claims that 58 percent of victims are small businesses. The obvious first step for data protection for any startup is to understand the risk they face.
One strategy for avoiding breaches is investing in strong antivirus and anti-malware software. Startups must take data security seriously by using the highest encryption standards. And apart from that, they must incorporate security as a culture. Cybersecurity experts Varonis state that “58 percent of companies have over 100,000 folders open to every employee” and “30 percent of companies have over 1,000 sensitive folders open to everyone.” Those statistics underscore how important it is for employees to be trained on how to handle company data, and that management itself (along with the IT department) should establish data storage and sharing rules while monitoring employees for possible breaches. This can, at mininum, save a lot of money in future legal fees.
Startup founders may face legal issues in the areas of determining rights and shares of the partners, business documentation and intellectual property-law protection. No one wants to be settling cases in court, so it’s imperative to implement strategies that forestall such occurrences.
Before starting up, entrepreneurs must make themselves aware of the nation’s company laws and tax obligations as it relates to them and their business niche. This necessitates hiring a lawyer well-versed in business laws. Ignorance is not a defense, and it’s better to be on the safe side.
In addition, you must protect your intellectual property, especially if you have a unique name or have created a unique product or creative work. Unfortunately, many startups still don’t recognize the need to prioritize IP protection. In the United States, the Patent and Trademark Office and Copyright Office serve as valuable resources to ensure you don’t get embroiled in petty legal battles.
Studies show that a vast majority of small businesses go under due to cash-flow issues. And while I could go on and on giving clichéd pieces of advice, one that I have found particularly useful is that entrepreneurs should learn to separate personal finances from business finances. Keep those accounts separate.
Also, technology and automation can help you keep track of your finances accurately. For instance, there are different accounting softwares that enable you to manage your business budget and process your tax-payment details. Then there’s the creation of emergency funds. Not doing so is a common financial mistake among small business owners. Ask yourself if your business can operate relatively comfortably for the next six months in case of a major emergency. If not, you need an emergency fund account, quick. Build the account slowly to reach a reasonable amount. The amount of money to keep stashed is based on the risk associated with your operations. More importantly, ensure that your emergency funds are expended in emergency circumstances — i.e. unforeseen situations — only.