Having complete control over your business is a wonderful thing, so it should come as no surprise that the sole trader route to business ownership is very popular in Australia’s small business owner community.
But like every other kind of business structure, sole traders are exposed to risks and complexities that the business owner must deftly manage. In fact, sole traders may be more exposed than businesses that are structured as a company.
This is because sole traders are legally and personally responsible for all facets of their sole trader business – everything from day-to-day business decisions to losses and debts. A top priority is to minimise risks as a sole trader. As such, many sole operators choose to hold sole trader insurance (also referred to as sole trader liability insurance) for their business.
How to introduce business risk management as a sole trader
Business risk management and business risk mitigation are popular strategies for sole traders because they can minimise risks for a sole trader and create a safety net to help protect your sole trader business in the event that things don’t go according to plan.
Risk management can help sole traders to identify, evaluate, and prioritise risks to their business. The goal is to reduce your risks wherever possible. Sole traders may benefit from considering the following four steps for managing their business risk and liabilities. Together they form the framework for managing your risks and liabilities as a sole trader.
Step 1: Risk identification
Risk identification is where a sole trader strategically assesses their risk management plan and takes into consideration industry forecasts, market assessments, and competitor analysis. Sole traders can use the insights gathered from these sources to identify the potential risks and liabilities to their sole trader business.
Step 2: Risk assessment
With the risks and liabilities now identified, now you can assess each of risk and consider the likelihood of each risk occurring, and its severity and impact on your business, should it occur. Sole traders can run risk assessments on a variety of business functions within their operation to help them to define and to better understand the risks to their business.
Step 3: Risk monitoring and control
Sole traders can benefit risk monitoring and control because it is a proactive measure that can be used to identify risks that could directly impact their business. Once identified, control and monitoring strategies can help avoid or reduce losses from unanticipated events by understanding their causes and planning strategies for managing them.
Step 4: Risk transfer
Risk transfer is the term used when one party takes on the risk of loss from another party by payment or agreement. It can be direct or indirect and may occur before or after the loss event. Popular methods of risk transfer for sole traders include negotiation with suppliers, contract provisions that provide compensation, and the following types of sole trader insurance.
Public liability insurance*
Public liability insurance provides protection for you and your business in the event that a customer, supplier, or a member of the public brings a claim against you due to being injured or sustaining property damage as a result of your negligent business activities.
Product liability insurance*
Product liability insurance* protects your businesses against claims by third parties relating to property damage or personal injury caused by your products. Product liability insurance usually forms part of a public liability policy, and the word ‘product’ will be a defined term in the policy wording.
Professional indemnity insurance*
Professional indemnity insurance protects sole traders against claims of negligence or breach of duty made by a client as a result of receiving professional advice or services from your business.
Business interruption insurance*
Business interruption insurance provides protection for the loss of income and increased costs of operating your business caused by a specified insured event (such as property damage or fire). It is available as an additional cover option when you buy a Business Insurance Pack.
Cyber liability insurance*
Cyber liability insurance* helps protect sole traders from claims and support their profitability in the event of a cyber breach or attack. Costs associated with defending a cyber claim are also covered by a cyber liability insurance policy.
Understanding how to minimise risks as a sole trader is an important step in setting the framework for success as a sole trader. A key part in that process is protecting your sole trader business by securing your sole trader insurance*.
Visit the dedicated sole trader insurance section of the BizCover website to compare business insurance quotes for your business. Or give us a call on 1300 920 864 to find out how quick and easy it can be to purchase sole trader insurance.
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