Estimated reading time: 3 mins
As freelancers, our business is our livelihood. We don’t have the ‘safety blanket’ of the corporate environment – it’s safety rests on our shoulders. But have you protected it?
Here are some essential things you need to protect your freelancing business from the worst.
Freelancers need insurance to protect their business from disaster. Are you insured? The kinds of insurance your freelancing business needs are:
- Professional Liability Insurance: sometimes known as Professional Indemnity Insurance or Errors & Omissions Insurance. This protects you from mistakes. We all make mistakes, and some can be costly. In the rare circumstance that you make a mistake which costs your customer, they could file a lawsuit against you. This insurance protects you against losing your business, your home and your shirt. For example, if you are a programmer and you develop an app with mistakes that cost your customer, you will be made to pay. I have this insurance and I am protected up to $3m in claims against my business. In order to be protected, I must have contracts with my customers, and I must be appropriately qualified to provide the services delivered
- Public Liability Insurance: if, in the provision of your services, you put the general public at risk, you must have this kind of insurance. For example, if you dig up roads to install cables, then the public is at risk from falling down the holes or a motor accident
- Contents Insurance: if you invest capital in equipment then this needs to be insured. Your computer; your tools; your workspace. If you were to be without these, how much would this cost you in lost business?
- Key Person Insurance: what if you were to be sick long-term? If you’re the only person who can do what you do, then you’re a Key Person. You need protection against long-term illness and the loss of revenue
Freelancers need tight contracts to protect the revenue they expect. Do you have contracts that protect you from a customer reneging on their bill? But you’re no lawyer, so how do you right a contract?
You don’t need to employ a high-flying lawyer for this – it’s possible that you have access to a lawyer for this purpose already, but didn’t know it. If you’re a member of a professional body or institution, they may provide you with access to a qualified lawyer within your membership. They may also provide you with ‘boilerplate’ contracts that apply to all your work, where you just fill in the gaps. Why not start there? If you’re not a member of such an organization, perhaps you could join one that provides this service as part of the package?
It’s well worth establishing a general ‘Terms of Business’ as a reference point for your contracts (that way, you only need to have it written and checked by a lawyer once) and then use specific customer contracts that contain special clauses for the specific customer. Then run a contract by a lawyer to ensure that you’re not exposed to unforeseen risk. Small investment upfront will save you from much pain later on.
Above I mentioned ‘Key Person Insurance’. You can protect your business by establishing locums (stand-ins) to carry on your business if you cannot. Your profit margins will be hit, but your customers will still receive your services and you will retain them to make a healthier profit another day.
We can’t predict the unpredictable. Sometimes, surprises happen where we need to spend our way out. Having emergency finance, like an overdraft facility, could make the difference between sink or swim. Do you have an emergency overdraft facility in place? If not, talk to your business bank today.
Optional: Invoice Financing
Are your invoices paid on time? Your cash flow is at risk when customers don’t pay when they should. Have you considered Invoice Financing as a solution? This is a form of insurance where a third-party takes on the risk of customer payments, and you pay the third-party a premium in the form of a discount against invoice value.
Have you got these things in place?
Are you protecting your income and the asset you’ve worked hard to build?