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As small business owners, we must wear multiple hats, solve problems, grow our businesses, keep our customers happy and impressed, keep ahead of our competition, manage staff, pay the bills and more (phew!).

It does require a special kind of person to be a small business owner. However, it does not require you to be invincible, and we make a great mistake if we start thinking that we are.

We all agree that optimism is essential for business success, and pessimism is destructive; yet being overly optimistic is just as dangerous. I hate to be the bearer of bad news, but you, your business and your client base are not bulletproof or eternal.

At any given time, something unpreventable can happen that will bring major change, challenge or disruption to your business and your life.

For example:

  • Your business could experience a sudden change in market conditions.
  • A family matter may require that you take an extended period of time off work.
  • A major client could take their business elsewhere.
  • You could get sick or injured.
  • A new disruptive competitor could enter the market.

With this in mind, you need to take care of yourself and safeguard the future of your business. Here are five essential precautions for business owners who are not superheroes:

1. Be ready for the entrance of a disruptive competitor

Beware of leapfrogging or the entrance of a disruptive competitor. A disruptive competitor enters the market offering what others already offer, but with an improvement that no one expected. They will either find a way to be significantly cheaper than their competitors, add a new invention to the offering, design the same product for a different set of consumers, or make the offering accessible to the masses.

Don’t be fooled into thinking that this does not affect small business. The rate of new entrants into the market, combined with the benefits of online and new technology mean that disruptive competitors are a threat to every business.

The solution is to:

  1. Be aware of what a disruptive business model would look like in your industry so you can recognise it before it appears as a serious competitor that is demanding your customers’ attention and disrupting markets.
  2. Make sure that your business is different and has something that customers uniquely value. Don’t make it easy for your business to be compared to other businesses.

“Me too” businesses are doomed to compete on price, leading to a bidding war where the only winners are consumers or innovative disruptive competitors. And as other “me too” businesses do the same, profit margins shrink for you and your competition.

It is very hard work to compete on price alone. People will often gladly pay for great service, personalised care and convenience. Customer service, quality and ease of use will cause repeat business whereas competing on price is always far more risky.

2. Exit strategy and succession plan

In the event of dispute, divorce, serious illness, retirement or simply wanting to move on from the business, you need to have an exit strategy that helps you sell your business for maximum return instead of being forced to have a ‘fire sale’.

Ask yourself, if a tragedy occurs where you cannot return to work or run your business,

  • what would happen you were in the middle of a project?
  • what would happen to your staff?
  • what would happen to the business – would you sell it, close it down, have someone else take it over?
  • what would happen to your assets, IP, accounts, finance, clients and invoices?

A good succession plan will help answer these questions. A basic template can be found on www.business.gov.au and a more thorough plan can be created with your accountant and lawyer. It is never too early to plan for the future of your business.

3. Prepare for the possibility of a change in market conditions

Determine if your business is a luxury or a necessity. If it is a luxury it is likely to be hit hardest by a change in market conditions.

As such, ensure you have a strong brand, a solid reputation and ongoing positive word-of-mouth referrals, with your unique selling points always being front-of-mind to your ideal customers. This way, if market conditions change, you do not need to justify your existence, you simply need to market yourself differently or more frequently.

4. Income protection

In the event of unexpected injury or illness where you need to take extended time off work to recover, you need to live off more than just your savings.  Tragically, many small business owners who find themselves in that situation have to the sell their business to try and cover the cost of living.

Income protection can replace up to 75 percent of your salary if you are unable to work due to unexpected illness or injury. Instead of facing the possibility of losing your business to cover the costs, you can calmly follow your succession plan or exit strategy and rely on your income protection insurance to help pay the bills instead.

Small business owners should have their personal insurance tailored to suit their unique needs. Not only will this save them money, but it will also accommodate the fact that sole operators and small-to-medium business owners tend to have a fluctuating income with more complicated circumstances than an employee of a larger business. An independent personal insurance broker can help you with this at no cost to you.

5. Life insurance

While it is certainly not a fun topic to discuss over dinner, it is important to plan for what will happen to our loved ones when we pass away. We need to make sure that in the event of us passing away, our loved ones will be provided for and not left with debts from our business and personal commitments. Why saddle others with your debt?

Term life insurance is where you pay for a specific lump sum that is paid out if you die. The payout can be used for any purpose including paying off debts or investing it to generate an income stream for your family. When structured well, life insurance can be claimed as a business expense.

6. Look after your business by taking care of yourself

Are you one of those small business owners who finds it almost impossible to switch off from business? Have you ever sneakily taken work with you on your family holidays? Do you check your email in bed?

If so, you’re not a rare breed. Studies show that this is symptomatic of the burden of responsibility and stress felt when running your own business. However, this is not sustainable, conducive to productivity or a good working habit.  If you are tired, unmotivated and unrefreshed, your business will be too. So include in your priorities time to relax, be healthy, spend time with loved ones and laugh. Make sure you stop every now and then to do something quite different to your usual business activities. If your business can’t run without you, you should treat this time as a business priority.

Remember, as fun as it could be, as a business owner you are not superhuman and your business is not bulletproof. Planning ahead for the things that you cannot change is just as important as the initial planning stages of your business.

–Rick Mapperson is founder and managing director of Rick Mapperson and Associates, a personal insurance brokerage.

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Rick Mapperson

Rick Mapperson

Rick Mapperson is the founder and managing director of Rick Mapperson and Associates ( http://sydneyinsurancebroker.com.au/), a personal insurance brokerage. Rick has been insuring people, particularly small business owners, for twenty years. Rick combines his skills as a licensed Financial Planner and his understanding as the co-founder of an Australian charity focused on families, to understand the best interests of his clients. You can follow Rick on twitter @RickMapperson

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