3 Strategies to Reduce Your Business Risk

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3 Strategies to Reduce Your Business Risk

There are plenty of risks involved with starting a new business. Luckily, if you take the right steps to mitigate your risk, you can increase your odds of business success. Here are three tips to help you do that.


The first tip is probably the most obvious. Purchase insurance. But what does that mean?

Long story short, you can purchase insurance to reduce financial liability to your business for specific things. You may consider some or all of the following policies:

  1. General Liability Insurance: This policy will protect your business if you, your employees, or your products or services cause bodily injury or property damage.
  2. Property Insurance: This policy will protect your business’ physical property against damage, theft, destruction, and the like.
  3. Commercial Auto Insurance: This policy will protect your business’ vehicles against damage and collisions. If you don’t have vehicles, you might consider a non-owned policy to cover your employee’s cars if they are used for work purposes.
  4. Workers Compensation Insurance: This policy covers employees who are injured on the job. (This is required in most states if you hire employees.)
  5. Professional Liability Insurance: Sometimes called Errors & Omissions (E&O), this policy will protect your business if you provide a client with bad professional advice.
  6. Directors & Officers Insurance: This policy will protect individual directors and officers if they provide bad advice to the company.
  7. Data/Cyber Insurance: This policy will protect your business in case of data breaches, cyber hacks, and similar risks. It is becoming more and more important as everything moves into the cloud.
  8. Key Man Insurance: If you or other people in your company are essential to the business’ operations, you may consider this policy to help the company if that person were to die.


In addition to purchasing insurance, it is always smart to use written contracts and to include provisions to allocate risk within those contracts.

For example, you can include a force majeure provision to limit liability due to acts of god. You can also include disclaimers and limitations of liability in your contracts to reduce the damages you may have to pay if you are found liable for breach of contract. You can also allocate certain risks to certain parties and require all of the parties to purchase relevant insurance policies and even name the other party as additional insureds on those policies.

Additionally, just having a contract in and of itself will help you reduce risk. The reason is that by going through the process of negotiating a contract, you and the other party are more likely to think through all the various “what if” scenarios. As a result, you are less likely to get into a dispute with the other party.


When possible, create new LLCs (or other business entities) to isolate liability. For example, if your business is going to purchase real estate, it is often a good idea to place the real estate in a different business entity so that liabilities resulting from the property won’t affect your main operations company.

For another example, if you are creating a joint venture with another business, you can create a new company which is co-owned by you and the other business rather than merging your two existing companies. That way, if things don’t work out, you can hopefully keep your original business going without too much harm.


Another great way to reduce your risk is to rely on experts who have seen lots of things go wrong. And one place where you can find a lot of expert advice is within the Kauffman Foundation’s FastTrac program. By going through the online classes and tutorials, you can learn practical strategies to reduce your risk and improve your odds of success.

Learn more and register for free at www.fasttrac.org.

CONTRIBUTOR: Chris Brown, Venture Legal