FAQ how do I limit my entrepreneurial risk?
If you operate as a self employed, the profit you make is yours as well as losses and a variety of risks. What are your risks and how can you reduce them?
- The client isn’t happy; they will not give you further contracts or hold you responsible for damages.
- Your clients don’t pay, or pay too late or less then agreed.
- There are not enough clients which results in a low turnover; you can’t pay the bills.
- You have disagreements with people you work with, resulting in above risks becoming a reality.
- You can’t finish a project on time because of illness, even by employing someone else: you get paid less or not at all, are held responsible for damages; you cannot get hold of a commission.
- Tools and instruments you work with become damaged or lost.
You cannot completely cover yourself/your business against all insecurities. If you don’t want to take risks you will need to work for an employer. The employer will carry the risks. Working for wages alongside running your business is a way of having at least some security. There are different ways you can reduce your business risks:
Take extra good care of yourself
Good health is essential to function well. If you like participating in ‘dangerous’ sports, consider the consequences injuries will have on your career or business.
Keep in touch with your contacts
What do you know about the client. Is he/are they financially sound; can he pay the bill? Is he trustworthy; is he going to pay? Does he communicate clearly, also when he delivers criticism; will he pay? You can never really tell beforehand. You can consult your network; find out more about his reputation. Check if he is genuine.
Drawing up contracts and determining conditions
You should record a number of things on paper; including payment deadlines, extra interest with late payment, down payments. You can reduce liability in general terms, for example to the amount which your public liability insurance covers you or to the amount for which you have agreed on the contract. If the nature of the projects requires it, you can agree in the contract to discuss the continuation of the project in interims.
Choosing the right type of enterprise
If you start a legal form with legal entitity, business debt claims can only touch the assets of the corporation, not your private property. If you have assigned expensive assets to your corporation, like a house or musical instruments, debt collectors are able to claim them. Another option is forming a general partnership. A general partnership is not a legal personality with a legal entity but you can make agreements where it supports you in case of prolonged sickness and holidays.
Private insurances will not cover your enterprising activities or goods. There are separate business insurances for that: think of a business liability insurance (maybe with an on approval coverage (opzichtdekking) and/or a professional liability insurance (beroepsaansprakelijkheidsverzekering)) , a disability insurance (arbeidsongeschiktheidsverzeking, AOV) and legal aid insurance or business content insurance (bedrijfsinboedelverzekering). Some professional associations offer interesting insurances or advice about insurances.