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Startup Failure, Risk Management & Business Insurance

by Get Indemnity ™


Starting a business can be the most enthralling experience you ever undertake. The ability to be the master of your own destiny has a huge draw.

However, start-up entrepreneurs should be aware the odds are stacked against them, with the UK startup failure rate higher than you might expect.

It’s estimated that sixty per cent of startups fail within three years and twenty percent will close within just 12 months. According to Companies House there were 508,865 business deaths last year, that’s the equivalent of 58 new businesses failing every hour.


Business birth and startup failure rates in the UK

Source – UK Office for National Statistics

There are a wide range of reasons why startups fail, however cash flow is commonly identified as the largest cause of concern for the majority of SME's. 

Often with inadequate resources, risk management controls and resilience to market forces, startups are more often exposed to financial shocks than their larger competitors.

Effective management can seek to manage risk to your business, while maximising the opportunities for growth. However, it's far too easy for startups to have tunnel vision in pursuit of their goals and not consider risks that can cause their business to fail.

Risk management controls against startup failure

Growth and innovation will often take up the vast majority of your time, however the importance of survival and risk management should not be understated. 

As a subject matter expert within your industry, you are best placed to consider what internal and external forces can negatively impact your business.

The below risk management process is a simple and effective approach to manage the potential risk of startup failure:
1.    Identify risks to your business
2.    Analyse and measure the impact
3.    Decide which risks are unacceptable
4.    Reduce or transfer any unacceptable risks
5.    Monitor and review

If the potential cost is greater than your risk tolerance level, consideration should be made to how you can avoid or mitigate the risk to an acceptable level. 

There are a number of tools available to guard against startup failure, a risk register for example can assist with recording and monitoring emerging risks within your business. 

Business insurance to guard against startup failure

No one wants to purchase business insurance and in the early phases of growth the additional expenditure on something you hope you will never happen can feel counterproductive. 

However, protecting your balance sheet and having sufficient resource to access legal support should something untoward occur, can make all the difference between a successful and failed startup.

Business insurance is an effective risk transfer mechanism for low frequency, but high severity events that can cause significant financial distress. The pooling of insurance premium provides a cost-effective means to protect your hard work and time you’ve invested. 

Below are examples of risks that startups face that can be effectively transferred with business insurance:

•    A 3rd party claim for an employee that slips and falls down the stairs. 
•    A 3rd party claim for damages arising from a breach of contract.
•    A 3rd party claim for accidental personal injury to a member of the public.
•    Damage to costly equipment that your business relies on to operate.
•    A 3rd party claim for injury or property damage from a product you supplied.
•    An investigation and fine by a regulator that alleges your non-compliance.
•    Property damage to your premises as a result of a fire, flood, storm, ect.
•    The cost of not being able to trade as a result of a fire, flood, storm, ect.
•    Theft of personal data and being held to ransom to make a financial payment.
•    A social engineering scam means you make a payment to the wrong person.

Startup failure can occur for a vast number of reasons, however there are a number of risks identifed above you can easily protect your business.
Startup failure and how to protect your business

We recommend you discuss your requirements with an insurance broker to consider the availability of products to assist with protecting your balance sheet.

For a reasonable cost there are protections available that can provide financial and legal support when your business requires it most.


Originally posted by Get Indemnity

This guide is for information purposes and based on sources we believe are reliable, the general risk management and insurance information is not intended to be taken as advice with respect to any individual circumstance and cannot be relied upon as such.