Small businesses are the lifeblood of the American economy, making up 99.9 percent of all businesses in the United States, according to the Small Business Administration.
As a freelancer or small business owner, you know how much effort, energy, and work has gone into starting and running your business. You’re also aware that freelancers and small businesses are continually exposed to risks that threaten the continued success and longevity of a business.
Risk is impossible to avoid, no matter how careful and meticulous you are. Failing to protect against an unexpected or unavoidable incident may lead to bankruptcy, insolvency, and the end of everything you’ve worked so hard to build.
Fortunately, freelancers and small business owners can secure their business by following 5 simple pieces of advice.
1. Secure your data
Data collected by freelancers and small businesses represents a valuable currency to unscrupulous thieves, hackers, and other ne’er-do-wells. As a result, failing to secure your data — credit and debit card numbers, Social Security numbers, names, addresses, dates of birth, and other personality identifiable information — is a significant liability.
Verizon’s 2019 Data Breach Investigations Report analyzed data from between November 1, 2017 to October 31, 2018 and found:
- 43% of data breaches impacted small businesses
- 71% of data breaches were financially motivated
- 62% of data breaches (not including self-inflicted breaches, such as accidents or misuse) were perpetrated via brute force, phishing, or stolen credentials
- Professional, healthcare, and finance were the most targeted industries
Small businesses who suffer a data breach lose out on an average of $1.52 million in lost business, according to the IBM 2020 Cost of a Data Breach Report. All told, insufficient cybersecurity costs small businesses an average of $3.86 million per incident.
What can freelancers and small businesses do to protect their data?
The U.S. Chamber of Commerce recommends:
- Securing your servers with firewalls, off-site backups, and limited access
- Scanning emails for malware and phishing attempts and training employees how to identify and avoid suspicious emails, dangerous attachments, and questionable links
- Using complex passwords, frequently changing passwords, and implementing multi-factor authentication (password management tools can simplify many of these processes)
- Installing and using anti-virus and anti-malware software
- Working with qualified IT and cybersecurity professionals, whether in-house or outsourced
Securing your data takes some initial effort and consistent vigilance, but it’s a small price to pay compared to the costly ramifications of a data breach and resulting litigation.
2. Protect your work
Freelancers and small businesses are often hired to produce deliverables for or provide a service to their clients and customers. But without a contract or written agreement in place, you may fall victim to:
- Project scopes that expand out of control
- Debate about ownership or copyright of a completed deliverable
- Nebulous payment terms, amounts, and milestones
- Questions of liability and responsibility
- Abstract or changing deadlines
In short, you may spend heaps of time, effort, and money producing a product or providing a service, only for a third party to consistently ask for changes, fail to pay (or pay on time), assume copyright of the completed product, or terminate or lengthen the service term beyond what you consider reasonable.
Protect your work by putting a contract or service agreement into place that outlines, in specific terms:
- The product or service you’re providing
- The amount and frequency of payment (including due dates and late fees)
- Which party takes ownership of any materials or final deliverables (and when)
- When or for how long the service takes place
- How or when the contract or agreement is concluded or terminated
A properly written contract or service agreement protects all parties by spelling out everyone’s expectations for one another.
If a client requests alterations to a product you’ve already completed, you have a document that defines exactly what was originally requested — or how you can make adjustments.
And if either party fails to deliver what was promised, a contract may make enforcement — and potential litigation — easier.
Though there are many freely available contract templates available to customize, consider hiring an attorney to draft a contract to your exact specifications or to review an existing contract before signing it.
3. Manage your money
Freelancers and small business owners shouldn’t discount money management as an afterthought. It’s a skill that needs to be developed, practiced, and embedded in your day-to-day business operations. Without proper money management, you run the risk of closing up shop — and even impacting your personal life.
In addition to enforcing the terms of your contracts, make sure you:
- Set competitive rates, and revise them on a timely basis (at least once per year)
- Create (and follow) a budget
- Record your income and expenses (or outsource this task to a bookkeeper)
- Properly categorizing each transaction benefits you at tax time, especially if an expense is considered tax-deductible
- Separate your bank accounts (keep business transactions separate from your personal transactions)
- Put money into savings (set money aside for taxes and an emergency fund equivalent to three to six months of expenses)
- Track invoices and payments owed to your business
- Pay bills, invoices, vendors, and payroll on time
If money management isn’t your forte — or simply eats up too much of your time — consider working with an accountant who can help you set up the tools and processes needed to manage your freelance or small business finances. Alternatively, hire an accountant to handle your business’s finances on your behalf, allowing you to spend more time doing what you do best.
4. Incorporate your business
Unless you choose otherwise, freelance and small businesses are sole proprietorships by default, even if you have to register your business with your city or state.
As a sole proprietor, you’re considered the same legal entity as your business. In other words, if someone named Joe Smith operates Joe’s Soap Co., there’s no legal distinction between the person and the company.
There’s nothing necessarily wrong with that arrangement. Starting a sole proprietorship is an easy and low-cost method of starting a business. And because the business income of a sole proprietorship is considered personal income, taxes remain relatively simple.
However, freelancers and small businesses operating as sole proprietorships are held personally responsible for any business liabilities. For instance, if a client sues your business, you’re on the hook for any judgment, settlement, or legal fees levied against your business, potentially jeopardizing your home, car, and other personal assets.
Incorporating adds some complexity to your freelance or small business, but separates the personal entity — you — from the business entity. By incorporating your business, your personal assets are protected from any lawsuits filed against your business.
5. Buy business insurance
Small business insurance protects freelancers and small businesses from risks that could lead to severe financial hardship. After all, no matter how careful you are and how intricate your plans may be, it’s impossible to secure your business against every danger that threatens it.
Could your business survive following a physical loss, such as a fire, theft, or equipment breakdown? How would you afford a lawsuit alleging copyright infringement or a breach of contract? Does your business have the cash to weather a data breach amounting to millions of dollars in damages and legal fees?
Even if you’ve secured your data, work only under contract, built sufficient savings, and properly incorporated your business, it’s still responsible for repairing damage, replacing lost or broken equipment, and defending against lawsuits.
Small business insurance shifts that liability from your business to your policy, protecting your business from costly and unexpected financial burdens as the result of a risk that comes to pass.
Through Deel’s partnership with Coterie, you can purchase same-day small business insurance coverage in a matter of minutes. MoreoverMore, Coterie’s insurance policies are easily customizable to fit the exact needs of freelancers and small businesses, giving you the protection and peace of mind you need without any of the bells and whistles you don’t.
Put together a plan to secure your freelance or small business
A plan for securing your business doesn’t need to come to fruition overnight, but laying the framework allows you to continually adapt, grow, and overcome whatever misfortune comes your way.
Begin by identifying what dangers and threats your business is exposed to. Then develop a plan to combat those risks, reducing the likelihood they occur or limiting the damage they can cause.
Schedule time to review your plan as your business grows and new threats emerge to ensure your business is safe and secure. You may not be able to fully prevent risk, but you can put a plan into place to mitigate the effects of an unwanted and unexpected claim, disaster, or incident.