If you want your business to thrive long-term, you need to have measures in place to financially protect it. This extends to businesses of all sizes and all industries; every business is dependent on positive cash flow and profitability for long-term survival. The question is, which measures are most important to keep your business financially protected?
Steps to Financially Protect Your Business
Take these steps to financially protect your business:
- Invest in insurance. One of your first directives will be investing in insurance. There are many individual types of insurance policies worth considering, including workers’ comp insurance (which may be legally required in your state), product liability insurance, and even business interruption insurance. You could also purchase an overarching policy designed for your specific industry; for example, you could purchase marine business insurance to protect your marine business in many areas at once.
- Invest in risk management. Next, consider investing in risk management. Every business is going to face certain risks and both external and internal threats. The better you understand these risks, the better you’ll be able to mitigate them (and protect your business in the process). A solid risk management strategy will keep you one step ahead.
- Invest in security. Data security is becoming increasingly important, as the value of data increases and the cost of breach skyrockets. In the United States, a data breach costs the average company $8.19 million—and most data breaches can be prevented with the right proactive protective measures in place.
- Prioritize cash flow. Cash flow is vital to your business’s survival. In case you aren’t familiar, cash flow refers to the movement of money within your organization; having a positive cash flow means you’ll have plenty of money on hand to manage your expenses and liabilities. Negative cash flow, by contrast, could ruin you. You can improve cash flow by ensuring consistent payments from customers, carefully managing incoming and outgoing payments, and consistently reporting to determine your current standings.
- Minimize costs. You can also improve cash flow and keep your business more financially stable by minimizing costs where possible. Most businesses can reduce expenses in many meaningful ways without directly impacting their ability to perform. For example, can you switch to a less expensive type of software, or eliminate some software subscriptions entirely? The more efficiently you operate, the less susceptible you’ll be to a sudden loss of income.
- Scale gradually. Many business owners are eager to scale their enterprises as quickly as possible, becoming the biggest and most powerful company they can in the shortest possible timeframe. But this is often counterproductive; if you scale too quickly, you’ll overextend your investments, your quality and consistency will decline, and you’ll end up with too much overhead before you can generate ample revenue to counteract it. Instead, focus on growing your business gradually and deliberately.
- Establish multiple streams of revenue. You’ve likely heard the financial advice to “diversify your portfolio,” investing in many different assets so no single investment can sink your strategy. You can also diversify your business’s revenue. Consider establishing many different streams of revenue running simultaneously, so if you ever experience losses or a sudden decrease in demand in one area, you can rely on your backup sources.
- Create emergency funds. It’s not a bad idea to stockpile some cash for your business as well. If you go through a dry spell or have to deal with a major unexpected expense, you can tap into this emergency fund and stay afloat. While you’re at it, consider setting up multiple lines of credit you can tap into whenever you need—and have them ready before you actually need them.
- Protect your relationships. If your business is like most, much of your success depends on the preservation and success of your relationships with vendors, partners, customers, and other parties. Make sure you invest in these relationships and keep them in good standing however you can.
- Always have a backup plan. Even with the best-laid financial strategy and a thriving business environment, there’s still a chance that something will go wrong. Accordingly, it’s in your best interest to hope for the best and plan for the worst; always have a backup strategy in place, just in case things go south.
It’s also important to regularly evaluate your business’s financial performance and analyze your strategy for weaknesses. Did you experience any financial emergencies over the course of the year? If so, what were their root causes? Could they have been prevented? Which of your financial protective measures were insufficient, and how can you improve them? The more you invest in financial protection, the more stable and reliable your business will become.