As a consultant, your livelihood hinges on providing services and advice at a professional level. As a result of your words and actions, clients alter their behavior—meaning they often hold you responsible for the outcome, whether good or bad. This kind of responsibility comes with inherent risks, like the five outlined below.
While there’s no magical way to outright eliminate all risks on the job, consulting business insurance can mitigate the financial damages. Keep reading to learn more about the importance of having a backup plan.
Getting Sued by a Client
Nothing fills a consultant with dread quicker than the thought of a client lawsuit. Not only is it bad for business, but it can also be a time-consuming and costly process. If a client holds your professional recommendations or actions responsible for their financial loss, they can and will sue you. Are you prepared? It’s no wonder the Insurance Information Institute lists management consultants as one of the top businesses requiring professional liability insurance.
You’ve performed your duties, you’ve sent the invoice… so, where’s your money? It turns out some clients pay late, if at all. You can reduce the chances of this happening by structuring your payments to fall during the first week of the month. For example, if you send out an invoice on the first day of each month with a one-week timeframe, that gives clients until approximately the 8th to pay. If they fail to do so, you can hold off on completing that month’s work until you do get a payment.
Even the smallest of businesses are vulnerable to data breaches these days, and the average cost for an SMB recovering from a data breach is $36,000 to $50,000. Besides taking all necessary security precautions, your consulting firm (whether it’s a one-person show or a sizeable operation) should look into cyber insurance.
As a consultant, your reputation is everything. The grapevine works two ways: Word-of-mouth referrals tend to generate business, while dissatisfied clients spreading the word can hinder your ability to sign new clients or re-sign with old ones. It’s your duty to make sure you fulfill your role as agreed upon in the contract. If there is a dispute, settling it straightforwardly is usually advantageous.
Irregular Income Flow
There’s a reason “when it rains, it pours” is a cliché at this point. When business is booming, you may have so many prospects on your plate you actually have to turn some work away. But when work is scarce—or a misfortune occurs like a lawsuit or reputational attack—the lack of work tends to expand. Working as a consultant means accepting that your workload may fluctuate, whether it’s a result of the economy at large or a specific incident.
Whenever you’re providing professional opinions, you can expect to face some level of risk. After all, even with the right training, expertise and equipment, no human is 100 percent right all of the time. Acknowledging this risk ahead of time will help you handle it when it arrives.
Consulting business insurance provides baseline protection against a number of risks. Ready to protect your consulting career with the right coverage? Visit CoverHound for your free quote.