! · Hard times
Risk, contracts and protection
Most crises are cheaper to prevent than to survive. A few basic protections, like written agreements, the right insurance, backups and separated finances, cost little now and can save the business later. A few hours of preparation buys real peace of mind.
Think about risk like a detective
For each risk, ask two questions: how likely is it, and how bad would it be? Something unlikely but devastating, like a data breach or a lawsuit, deserves protection even if it feels remote. Something likely but small, like an occasional late payment, needs a routine, not insurance.
Get it in writing
Handshake agreements feel friendly until there's a disagreement. A short written agreement protects both sides because it makes expectations clear before work starts. For client work, it usually covers:
- What's included, and what isn't. See scope creep on Clients & Pricing.
- Price, payment terms and what happens if payment is late.
- Timelines and what each side needs to provide.
- How either side can end the agreement, and with how much notice.
- Who owns the work, and how confidential information is handled.
- Limits on liability, where appropriate.
Have an attorney review your standard agreement once, then reuse it.
| Risk area | Basic protection | Who to ask |
|---|---|---|
| Lawsuits from mistakes | Professional liability insurance for service businesses, plus clear written agreements | Insurance agent, attorney |
| Accidents and property | General liability and property insurance | Insurance agent |
| Employee injuries | Workers' compensation, which most states require for employers | Insurance agent, state rules |
| Data loss or breach | Backups, strong passwords, two-factor login, cyber insurance | IT help, insurance agent |
| Personal liability | The right business structure, and business and personal finances kept separate | Attorney, accountant |
| Losing a key person | Documented procedures and cross-training | Your systems |
| Tax and compliance | Money set aside for taxes, deadlines on a calendar, a professional to check | Accountant, enrolled agent |
How protected is your business?
Check each one that's true today.Run the worst case before it runs you
Once a year, run a premortem on the whole business: "It's a year from now and the business failed. Why?" The answers are your risk list.
Backups, renewals and filing deadlines are the boring routines that quietly protect everything else. Put them on a calendar.
Insurance and legal review cost money. Compare that with what one uncovered lawsuit or lost client file would cost.
This is where self-consulting stops. Contracts, insurance and business structure need a qualified professional.
General education only, not legal or insurance advice. Requirements vary by state and industry. Talk to an attorney, insurance professional and accountant about your business.
Go deeperCase file, step-by-step how-to, common mistakes and questions to work through
Case file: The risk nobody wrote down
A fictional example
Nadia owns a small accounting software reseller and support company with seven employees. One senior technician, Chris, knew how to set up and fix the systems for the company's three largest clients. Those three clients brought in nearly half of the revenue.
Nadia had never thought of this as a risk until Chris was in a car accident. He recovered, but he was out for six weeks. During that time, the company struggled to support its biggest clients. One of them nearly left.
After Chris returned, Nadia sat down and did what she should have done years earlier: she listed every risk she could think of and scored each one for how likely it was and how bad it would be. The top three surprised her:
- Key person risk: only Chris knew the biggest clients' systems.
- Client concentration: three clients were nearly half the revenue.
- Data risk: backups had never actually been tested.
For each one, she picked one action. Chris documented the setup for each major client and trained a second technician. Nadia started a 12-month push to win more mid-sized clients so no single client was too big a share. And she tested a full restore from the backups, which failed the first time. The IT fix took a week. Finding that out in a test was far better than finding it out in a disaster.
How to run a simple risk review, step by step
- List risks in a few areas: people, clients, money, operations, data and technology, legal, reputation.
- Score each for likelihood and impact, 1 to 5, and multiply.
- Pick the top three to five by score.
- Choose one action for each: reduce it, transfer it (insurance or contracts), avoid it, or accept it on purpose.
- Give each action an owner and a date.
- Test what you can: restore a backup, run a fire drill, have a second person do a key task.
- Review every quarter. Risks change as the business changes.
"I want to flag a risk before it becomes a problem. If [risk] happened, here's what it would cost us: [impact]. I think it's [likely / unlikely]. Here's one thing we could do now to reduce it: [action]. Can we decide on it this week?"
Common mistakes and how to fix them
| Mistake | Fix |
|---|---|
| Only thinking about risk after something goes wrong | Review risks every quarter, when things are calm. |
| Assuming backups and plans work | Test them. Untested plans are guesses. |
| Ignoring "people risk" | Make sure no key task depends on just one person. |
| Trying to fix every risk at once | Focus on the top few. Accept the small ones on purpose. |
Questions to work through
- If your most important employee were out for six weeks starting tomorrow, what would break?
- What share of your revenue comes from your top three clients?
- When did you last test restoring your data from a backup?
- What does your insurance cover, and what doesn't it?
- Which risk have you been accepting without ever deciding to?