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There comes a time when every successful enterprise needs to ditch the baby steps, put it all on the line, and take a giant leap forward. At that point, the decisions you make will determine whether the next phase involves growth and prosperity or financial breakdown. With smart risk management, however, and a tailored insurance plan, your business will be in the best position to come out the other side of its growth spurt with its name, product, and bank balance intact.
Here, we’ll identify the four major hazards that growth can pose to your business and broadly establish some ways to moderate your exposure.
Growth isn’t cheap. You will generally need a large lump sum of cash if you want to open a store, buy new equipment, put on more staff, create new lines, build a website or take on a whopping big contract. You’ll also need working capital to pay the bills and keep the machine running until the investment starts paying for itself. It all adds up.
Most businesses will need to seek out a loan to expand. Not all, of course; some businesses will have a cache of savings to draw from, while others will turn to angel investors or venture capitalists. But these are the lucky few – for most of us, large lump sums are beyond our financial reach and lenders provide the only viable option.
Debt also has a sting in the tail; repayments include interest and fees which will need to be paid, regardless of how successful your expansion is. Fluctuating rates can also add a second layer of uncertainty to your payment schedule if a variable option is taken.
Ultimately, you’re selling a brand. If your business expands too quickly, or without the right strategy to replicate the quality your clients expect, you run the risk of producing a sub-standard product, alienating your clients and ultimately diluting your brand.
Ask yourself if the business is scalable. If you hire some help, could they do the job as well as you, or is your unique skill the asset that people are paying for? In other words, is it feasible to operate on a much larger scale? Not every business has the scope to amplify operations and maintain quality. The danger here is that without the quality control you personally provide, the business could become a second-rate version of itself and, more importantly, a disappointment to your clients.
Overworked and underpaid staff will not stick around. If morale is low amongst the team and a healthy workplace culture is not in place, staff will move on and take vital knowledge with them. Hiring new staff is expensive and ultimately futile, because if the same problems exist you’ll not only have to offer more money to bring the next batch on, but they’ll end up leaving as well.
The quality of management can also decline with rapid growth. If management resources are stretched they tend to be reactive, instead of proactive, and are constantly ‘putting out fires’ instead of designing and refining processes to improve and update operations.
The right insurance is crucial during periods of expansion, and there is a huge risk in playing catch-up with your policies. As your business grows you’ll require an insurance package that is as robust as the business it protects and caters to all of its risk factors.
The range of insurance options on the market is vast nowadays, but you don’t need to insure against everything under the sun. As your business grows, however, and your investment becomes more and more significant, the amount of risk you take on increases exponentially. Insuring against expensive legal claim events should be your number one priority and your jump off point. From there, it’s in your best interest to do a full risk audit, and decide what other special insurances your business needs.
The little things might be able to take care of themselves, but the primary insurances – public liability and professional indemnity – are crucial. Ignore them at your peril.
Evolving your business into something bigger and better takes guts. But courage is just the start. As you progress, you need to get in the habit of savvy decision-making and deft avoidance of the kind of mistakes that could pull your business under. Of course, you also need to be able to make mistakes, pivot, and keep making mistakes until you get it right.
The key to keeping your business moving forward is damage control. Don’t mess up too bad. Exercise fiscal responsibility and manage debt wisely. Nurture and protect your brand by maintaining standards when it comes to management, as well as the product or service you’re famous for. And above all, insure your business against the kind of events that have the singular power to financially ruin it.
Risk is your friend, and while you need to embrace it, you should also keep it in check. You’ll never eliminate it completely, but the risk you do take on needs to be calculated, controlled and covered by a comprehensive insurance plan.