While daunting, these risks can be effectively managed, lowered, and insured against so that they don’t become a catastrophic event for your business. It requires some effort and execution, but it will pay off in the long run.
Read on for the top risks your Connecticut consulting business faces and some strategies to mitigate them.
1. Dissatisfied Clients
Even the most knowledgeable consultants make mistakes. From misadvising a client to a calculation error, mistakes happen.
But not all client issues arise from errors. Misunderstandings, poor or inconsistent communication, and contractual issues such as missed deadlines are common causes of client conflict. And conflicts can quickly turn into lawsuits, particularly if your client feels that the issues caused them financial loss.
Your first line of defense against these types of issues is your operation and the process you put in place.
Operational Best Practices
- Always have legally binding contracts in place prior to beginning a project
- Maintain clear and consistent communications
- Keep detailed records
- Proper contractor screening
- Stay within your Area of expertise
Professional Liability Insurance
Despite your best efforts, you may still find yourself facing a client lawsuit. Even if you’ve done nothing wrong, you’ll need to hire a lawyer and pay for the expenses to defend yourself.
Professional Liability Insurance or Errors and Omissions insurance can help you limit your financial exposure in these types of situations. It offers protection if a client claims your mistake caused them economic harm, and it can cover your legal costs in addition to the amount you’re determined to be liable for, if any.
This type of insurance is a critical component of your consulting business risk management strategy, given the average cost of a lawsuit.
2. Angry Employees
Unfortunately, the moment you hire your first employee, there is a strong chance that you will eventually be sued by one of your employees. And the cost is more than monetary. The process can be demoralizing and distracting for your management team.
Employee lawsuits against employers with less than 50 employees have risen significantly over the past year alone.
And it’s not just wrongful termination that can cause a lawsuit. Some of the top causes of employee lawsuits include discrimination, harassment, breach of employment contract, emotional distress, defamation of character, violation of privacy, and more.
The more internal protections you can put in place leveraging policies and procedures, the lower your risk is for employment-related lawsuits.
Operational Best Practices
- Hire carefully with full screening in place
- Properly train your management team in HR best practices
- Maintain an employee handbook
- Have a documented disciplinary policy
- Maintain detailed documentation
- Acknowledge and investigate all employee complaints
Employers Liability Insurance
We live in a highly litigious society with a sue first, ask questions later mentality. So even if you do everything correctly – maintaining human resources best practices, creating an accepting environment for employees, and treating your team well, likely, you will still be sued by an employee at some point.
Employers liability insurance can help you contain your exposure to such lawsuits and is a critical component of your insurance strategy to consider if you have employees. This type of coverage will help you pay for legal defenses associated with an employee lawsuit and any judgment or settlement related to the case.
3. Unhealthy Employees and Contractors
Your consulting business relies on the quality, productivity, and health of your most valuable asset – your talent. Because talent is so essential to the health and future of your business, you must have a strategy in place to protect and care for your talent.
In addition to the typical workplace and life stressors, consultants face long hours, heavy client demands, and frequent travel, which increase burnout. To address these issues and prevent more significant problems, consider working with an Agent to develop a comprehensive benefits plan beyond traditional benefits.
Within your strategy, consider essential topics such as childcare and senior care needs that call for flexible work and care arrangements. Prioritize mental health support within your organization and support employee wellness initiatives.
Workers Compensation Insurance
In addition to your employee benefits and wellness package, you will also need to consider Workers Compensation Insurance. In most states, including Connecticut, Workers Compensation is required by law when you have employees.
Workers Compensation Insurance protects your consulting business and your employees from the costs associated with work-related accidents and lawsuits.
4. Data Breach
The cost of cybercrimes in 2020 in the United States alone was $2.7 billion. And while big company cyber breaches make the news, small businesses are being attacked more frequently because they typically lack the proper security to protect themselves.
Consulting businesses are desirable to cybercriminals because you often work with and store sensitive client data. The world of cybersecurity is ever-evolving, but there are some basic precautions to be aware of.
- Keep your systems current with the latest releases.
- Train your staff to recognize suspicious emails and phishing attempts
- Backup all sensitive files
- Secure your networks
- Work with a cybersecurity specialist to put more robust protective measures in place
Cyber Liability and Data Breach Insurance
Cybercriminals are getting smarter all the time. As we’ve seen from the news headlines, even the most robust systems are vulnerable to cyber-attacks making cyber liability insurance a critical component of every business’s risk management strategy.
Cyber liability insurance can help cover your and your client’s financial losses in the event of a cyber breach. Coverage may include the costs associated with recovery, identity theft monitoring, and the mandatory notification of those impacted.
First-party coverage protect you if your business is attacked, and third-party coverage protect you from client lawsuits if they believe you’re responsible for a cyber attack on their business. Together they provide comprehensive coverage.
5. Property Loss
Your consulting business is vulnerable to both tangible and intangible property losses. Tangible property losses include things such as a fire at your office or damage or theft of your computers. Intangible property losses include the theft of your intellectual property or propriety processes, for example.
Unlike other businesses, your business value is built around the intellectual property and proprietary systems you’ve developed. The nature of these types of intangible properties leaves you exposed to the risk of an employee or outsider using them without your consent.
While it’s challenging to prevent this, you can take some basic precautions to lower your risk.
- Consistently execute strong, legal NDA’s with all employees, potential partners, vendors, and anyone else who may be exposed to your Intellectual Property.
- Don’t overshare when presenting or pitching your services
- Control who has access to information
- Establish a connection between your IP and your company through marketing etc.
You can take many precautions to reduce your risk of tangible property loss, depending on your unique situation. For example, installing sprinklers will significantly lower your risk of loss if you experience a fire. And installing an alarm will help deter burglars.
Commercial Property Insurance
The risk of loss of tangible property such as your office space, computers, furniture, and the like can all be covered under Commercial Property Insurance.
Depending on your circumstances, it often makes sense to bundle Commercial Property Insurance with General Liability in a Business Owners policy, providing additional coverages and discounts.
6. Inconsistent Revenue
A common pain point for many Connecticut consulting businesses is inconsistent revenue. As it’s often referred to, the “feast or famine” cycle – when you cycle between being completely slammed with client work and then having no client work coming in-causes tremendous challenges with your cash flow.
This uncertainty disrupts your ability to pay your staff, bills, and everything else on time, causing tremendous stress on you and the business. There are some proven ways to address this.
- Properly value and charge for your expertise
- Develop a consistent new businesses development process
- Collect up-front payments and at pre-established milestones
- Try to diversify your business model to be less reliant on retainer models
Cash-flow issues can be devastating to your business, so it’s crucial to build a plan to address the problem in the long run.
7. Lack of Business Continuity
What would happen to your business and your employees if you became critically ill or injured? Would the company continue if you were unable to work for an extended amount of time? Do you have a plan if that were to happen?
What about if you passed away suddenly? Can the business go on without you? Is there a plan for the sale or continuation of the company?
No one likes to think about such things, but without a plan, everything that you worked so hard to build might be gone – impacting your employees, family, and clients. Work with your business advisory team, your insurance agent, accountant, and lawyer to put a plan in place if you become unable to work.
Consider the following:
- A personal will
- Personal short-term, long-term disability
- Key Man Life Insurance
- Personal Life Insurance
- A succession plan for the business with a willing buyer
Next, prepare your business to execute the plan.
- Build your team capable of handling your extended absence
- Delegate and introduce clients to other team members
- Put systems in place that can continue without your direction
The Last Word
Your consulting business comes with many risks, but you can substantially lower the risk of company ending losses with the proper planning and execution. It’s critical to identify and consider the risks in your business and operations strategies so that you can address them.
Your business is important – make sure you protect it.
Yours in business,