According to Yahoo Small Business, "approximately 543,000 new businesses are started each month." That seems to be good news until you read the following sentence: "but unfortunately, even more than that shutdown."
To keep your small business from failing, there are simple but important measures many often overlook that you can't afford to. In this article, I cover four important areas startups need protection in data protection, legal protection, financial protection, insurance protection.
Data Protection
If anything, startups greatly underrate their risk of falling victim of a cyber attack and having their data breached. This is particularly so for companies that handle very personal information, such as fintech companies handling financial data of customers.
According to Brian Burch, Symantec Vice President, "Startups are incredibly vulnerable to cyberattacks in their first 18 months." In addition, Verizon's Data Breach Report for 2018 claims that 58% of data breach victims are small businesses. The obvious first step for data protection for any startup is to understand the risk they face.
Thereafter, explore strategies to avoid data breaches. One of these is investing in a strong antivirus and anti-malware software. However, this is not often enough protection. Traditional antivirus software is not obsolete, but the practice of solely relying on it to protect your data is.
Startups must take data security seriously by using the highest data encryption standards. More importantly, it must incorporate security as a culture. Varonis states that "58% 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."
The stats show how important it is for employees to be trained on how to handle company data. And the management itself (and IT department) should establish data storage and sharing rules while monitoring employees for possible breaches. Simple data protection such as this can save a startup a lot of money in legal fees.
Insurance Protection
75% of businesses in the US are reported to be underinsured. Worse still, though more than 63% of small business owners are aware of the risks associated with their operations, 40% of small businesses lack any insurance at all.
Many small business owners attribute their lack of warranty and insurance to financial constraints. While that is true, the lack of an insurance cover can cost you several times more in the case of a disaster. Besides there are several affordable premiums designed specifically for small businesses that you may consider.
However, an important point to note according to this Entrepreneur article is that using personal insurance to protect your small business is like not having insurance at all - because, business insurance is not like your home appliance warranty. As a homeowner, various home appliance warranty will help protect your home and personal belongings from costly repairs, but business insurance policy protects against losses caused by the company or its employees in addition to protection against third-party lawsuits.
“A business insurance policy should combine business liability, commercial property, business income, and equipment breakdown coverages into one cost-effective package for small businesses,” says Wilfried from Superprof.
For ensuring your business, some coverage options according to business.com are listed below:
- Business general liability insurance
- Worker's compensation insurance
- Commercial property insurance
- Business interruption or loss of income insurance
- Commercial auto insurance
- Errors and omissions insurance
- Cyber insurance
- Business owner's policy.
Legal Protection
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 wishes to have a case to settle in court; hence it is necessary to implement strategies to 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 and follows through everything. To do this, they must hire a lawyer well-versed in business laws. Ignorance is not a defense in the law and it's better to be on the safe side.
In addition, as early as when a startup is founded 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 the Copyright Office handles issues relating to those. You don't want to get embroiled in 'petty' legal battles.
Financial Protection
82% of failed businesses went under because of cash flow issues. Perhaps, you consider yourself as being among the 60% of small business owners who do not consider themselves knowledgeable about accounting and finance.
I could go on and on giving clichéd pieces of advice, but one that I have particularly found useful is that entrepreneurs should learn to separate personal finances from business finances. Keep personal and business bank accounts separate.
Also, technology and automation can help you keep track of your finances accurately. For instance, there are different (cloud) accounting software that enables you to manage your business budget and process your tax payment details. In that way, you don't have to worry about the maths or hire someone to do it for you. Already, more than 64% of small business owners use accounting software.
Another aspect I would like to point out is the creation of emergency funds. Seriously, not having emergency funds 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 no, 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, that is, unforeseen situations. Something else that can help you in times of an emergency is getting an insurance cover.
Conclusion
For startups seeking to have a smooth advancement of their business, it must protect itself in these four areas. These areas are a key place that every business should put a great check on so it doesn’t become the standing block upon the growth of the company.
Entrepreneurs must consider them as priorities to avoid future troubles.