More likely than not, if you’re running your own small business, you’re wearing more than your fair share of hats. If something goes wrong, you’re going to be the one to clean it up, or at least the one who has to answer for it.
That’s why it’s essential to be as proactive as possible to protect your assets and your business from internal and external hazards and risks. Here are a few ways to keep your small business as secure as possible.
Establish a Personalized 831(b) Plan to Allocate Tax-Deferred Funds
Captive insurance allows businesses to use an alternative risk financing tool. Added by the IRS in the 1980s, Section 831(b) of the Internal Revenue Code allows “micro captive” small insurance companies to make a tax election.
According to Hylant.com, “a captive is a licensed insurance company owned and operated by those it insures.” A group or an individual company can own it. The purpose of the captive is to pay for insurable losses experienced by the owner of the group or company.
An 831b plan provides some tax benefits by allowing owners to forego purchasing insurance on the open market. Instead, they can tailor their insurance coverage to meet their specific risks. This customizable coverage provides enhanced financial stability, often at a more affordable rate.
Maintain Proper Insurance Coverage
It’s crucial to have appropriate coverage for all of your unique business needs. When deciding on an insurance policy, closely examine coverage needs unique or specific to your industry.
Most businesses can benefit from general liability insurance. Still, a business that manufactures, distributes, wholesales, or retails a product or products may need product liability insurance to protect against defective products that may cause injury or bodily harm to a customer, purchaser or user of your product.
Professional liability insurance may be necessary for businesses that provide customer services to protect against negligence or malpractice. Companies with a large amount of property or physical assets should look into commercial property insurance.
This may sound like an overwhelming amount of insurance types to consider. If so, you might look into a business owner’s policy, designed to simplify the insurance buying process for small business owners by combining the most typical coverage types into one bundle.
Establish Robust Internal Controls
Implementing strong internal controls is crucial for businesses to mitigate risks effectively. Internal controls refer to an organization’s policies, procedures, and practices to safeguard assets, ensure accurate financial reporting, and promote compliance with laws and regulations. By focusing on internal controls, businesses can minimize the likelihood of fraud, errors, and operational failures.
One key aspect of internal controls is the segregation of duties. By assigning different responsibilities to multiple individuals, businesses can create a system of checks and balances. For example, separating the roles of cash handling, recording transactions, and approving payments reduces the risk of unauthorized activities or fraudulent behavior. This segregation helps to ensure that no single individual has excessive control over a critical process, reducing the opportunities for misconduct.
Safeguard Against Data Breaches and Protect Sensitive Information
Cybercrime is one of the most significant risks to small businesses in the 21st century (or to any business, really). Hackers continue to evolve and get more innovative, and ransomware continues to become more intelligently designed.
The best way to protect against cyber threats is to be prepared before an attack ever reaches your system. Make sure to implement cybersecurity measures to safeguard against data. If you or your data security team aren’t sure how to proceed, consider bringing in an outside consultant to assess your risks and set you up with an appropriate security plan.
Additionally, be sure to regularly back up critical data. Consider sending copies of classified or critical data to an off-site disaster recovery data center if possible. If you experience a physical break-in or equipment malfunction at your office site, your data will still be protected at an off-site location, making it easier to recover after a breach or collapse.
Mitigate External Risks
There are several ways to mitigate external risks to your company. The first is always to conduct due diligence. This applies to new hires, consultants, and any new accounts you consider purchasing, taking on, or merging with.
Make sure you have strong contracts with your vendors and suppliers. Be sure to have a lawyer look over all contracts, and ensure that you, as the business owner, fully understand the content and stipulations included in them.
Finally, don’t put your eggs all in one basket. Diversify your revenue streams. If one source of income dries up, changes, or is no longer viable, this will ensure that you still have other forms of income flowing in, protecting your business from bankruptcy or financial ruin.
Have an Iron-Clad Transition Plan
Know what will happen to the business if something happens to you. Whether you choose to retire, step away, or encounter an unexpected personal or professional speed bump, you need to have a succession plan written out and ready to go.
When things unexpectedly go wrong, there’s often no time to implement a full succession plan. This is why it’s essential to have this all thought out and ready to go from the beginning.
Take Proactive Steps for a Secure Future
Protecting your small business assets can seem overwhelming, but by following the above steps and planning ahead, you’ll be off to a good start covering your bases. If you’re ever concerned or unsure, don’t hesitate to ask for help. It’s better to be safe than sorry.