Consulting is a diverse sector, operating and specialising in many facets of the Australian economy.
But something that cuts through the various industries and connects consultants is some of the common risks they face.
And whether you are a seasoned veteran or just starting out, knowing how to mitigate or protect against these risks is essential.
Discover what are the most common risks consulting businesses face and what safeguards you can put in place to protect yourself and your business.
What do consulting firms do?
Before going on any further, it’s best to clarify what is meant by consulting business.
Essentially, consultants are the problem solvers of the business world.
A consulting firm employs industry-specific experts who provide advice and professional guidance.
They usually help other businesses who can’t sort out the problem in-house but can sometimes be contracted by the public sector too.
If this sounds like you, then continue to understand how to manage risk as a consultant.
Why consulting businesses may consider a risk management strategy?
The first step to managing a risk is identifying it and understanding the threat it poses.
Identify a specific event and think about how it would affect your business if it were to happen.
Next think about what would need to happen for the event to take place and how likely it is to occur.
Once you have these three factors, consider what impact the event would have on your consulting business and anyone else involved, and how long these consequences would last.
After you have analysed the risk, it’s time to manage it.
The first strategy you could use is risk avoidance. This strategy involves the consultant avoiding the risk by removing the possibility of the event occurring.
For example, the best way to avoid the risk of a car crash is not to ride in a car.
However, there are many situations where avoiding the risk altogether is not possible for consultants. It is the risk of doing business.
This is where a risk reduction or a consulting risk mitigation strategy may be a better option. This involves the consultant employing strategies to reduce the likelihood of the risk occurring or reducing the impact if it does.
In the example above, a risk mitigation strategy would be to get licensed and to only drive during the daytime to reduce the likelihood of a car crash. You could also wear a seatbelt and have car insurance to reduce its physical and financial impact.
That way, you could still have the benefits of the activity without it being a super risky event.
The five common risks to consulting businesses
Given that there are so many areas of the economy that consultants could specialise in, the risk consultants face is likely to be diverse and differ from business to business.
However, since most consultants give advice, use computer systems, and operate out of an office, here are the five common risks consultants face in their day-to-day business.
1. The risk of giving bad advice
One of the most potentially damaging risks to consulting businesses is the risk of giving bad advice. If your expert advice results in damage to your clients, you could be liable for a claim made against you.
Professional Indemnity insurance is there to cover the financial loss and legal costs in the event of a claim. This claim may be a result of an actual or alleged negligent act, error or omission whilst providing your professional service or advice.
The following example** shows the risk of giving advice and how a Professional Indemnity policy can protect consultants from the financial consequences of a claim.
An Occupational Health and Safety (OHS) consultant ran into trouble after preparing an assessment of the common areas of a residential apartment block.
A technician was severely injured whilst working on the property and a negligence claim was brought against the consultant and other defendants.
Damages against all the defendants exceeded $5 million and the consultant’s portion amounted to over $300,000. In addition to the settlement payment, $130,000 in legal costs was incurred by the Insurer.
Thankfully, the consultant had a Professional Indemnity policy, which financially protected them.
2. The risk of cybercrime and data breaches
The risk of cybercrime is growing in Australia, with more than 76,000 cases reported in the year to June 2022, according to the Australian Cyber Security Centre (ACSC).
The top Australian sectors that were targeted by cyberattacks include the Public Sector making up over one-third of reported incidents, followed by Healthcare (10%), Media and Telecommunications (8%), Education (7%), and Professional, Scientific, and Technical Services (7%).
Given that consultants work across nearly all sectors, the risk of a cybercrime incident affecting a consulting business is high.
Cyber Liability insurance is a type of business insurance which protects your business against both the legal costs and expenses related to cybercrime incidents. Your coverage may generally include cover for expenses and restoration costs relating to the following:
- Data breaches including theft or loss of client information
- Network security breaches
- Business interruption costs due to a cyber event
- Forensic investigation into the cause or scope of a breach
- Data recovery costs
- Cyber extortion
- Crisis management costs (to protect or mitigate damage to your businesses reputation resulting from a cyber event)
- Loss and legal costs, including fines and penalties resulting from a third party claim for data or network security breach against your company
3. Third party injury or property damage
Many consultants operate both in offices and on-site and interact with clients daily. These situations create the risk of a third party getting injured or having their property damaged.
All it takes is for a client to slip over in your office or for you to accidentally knock something over while doing an assessment, and you could be facing a claim.
Without having a risk reduction strategy in place, your business could be financially liable for any of the damages.
Public Liability insurance is an important insurance policy for many consultancy services.
It is designed to provide protection for you and your business in the event a customer, supplier or a member of the public are injured or sustain property damage as a result of your negligent business activities.
4. The risk of personal accident and illness
Many consultants run one-person businesses. If that person gets sick or has an accident, it is likely that the money stops flowing and the bills won’t get paid.
How would your business manage if something happened to you?
Having Personal Accident & Illness (PA) insurance covers you for loss of income if you were unable to work as a result of an injury or illness. The cover is generally available regardless of whether you sustain an injury or develop an illness due to your work.
If you were temporarily unable to work because of an accident or illness, your cover could pay you a benefit of up to 85% of your salary. Maximum limits do apply so it’s best to consult your Product Disclosure Statement (PDS) or your insurer to understand your coverage,
There is also an option to potentially cover you for accidental death or disablement, which can provide a lump sum payment to your beneficiaries if you die in an accident or to you if you suffer a permanent disabling injury.
5. The various risks to your business
While there are many risks associated with your customers and yourself, the building and your assets are also vulnerable to several threats.
From the risk of the elements damaging your building and people stealing your stock to unintentionally breaching statutory laws, there are many risks you may not have considered.
Nevertheless, these risks are real, and it could be an expensive time dealing with them if they come to fruition.
Fortunately, you can get Business Insurance – an insurance package made up of different policies that provide cover for your business contents, stock, tools and commercial premises when an insured event occurs (such as fire, storm, theft or even accidental damage).
A Business Insurance package can also cover your Portable Equipment, Glass and loss of revenue due to Business Interruption in specified circumstances. In addition, cover is available for Public Liability, Tax Audit, Employment Practices and Statutory Liability risks.
Extra tip
While these five risks are frequently faced by consulting businesses, the financial impact of them occurring is amplified if you are a sole trader.
Unlike consulting businesses registered as a company where liability falls on the business itself, sole traders are personally responsible for all aspects of their business, both financially and legally.
In other words, sole trader consultants could have their personal assets on the line if they are forced to pay for a claim.
Given their skin in the game, it’s essential that sole traders employ a financial safeguard to personally protect them in case things go wrong.
How BizCover helps consultants and consulting businesses
BizCover is an online service that offers a variety of business insurance options designed for the many different types of consulting businesses in Australia.
The platform has stripped away the complex forms and confusing jargon that has plagued the insurance industry and replaced it with a streamlined system that allows small business owners to compare, quote, and buy insurance online.
After selecting your policy from a leading panel of Australian insurers, you can access your policy documents instantly and whenever you need them.
If you’re a consultant that prefers the phone, BizCover has a dedicated service team ready to help.
Either way, be sure to check out your consultant business insurance options through BizCover, and help reduce some of the common risks you face.
**The provision of the claims examples are for illustrative purposes only and should not be seen as an indication as to how any potential claim will be assessed or accepted. Coverage for claims on the policy will be determined by the insurer, not BizCover.
This information is general only and does not take into account your objectives, financial situation or needs. It should not be relied upon as advice. As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording.
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ABN 68 127 707 975; AFSL 501769
