Going it alone


    Managing risk is more than just part of being a civil or structural engineer — it’s the cornerstone of your profession. You take a design for a building, bridge, or tunnel and make it functional, load bearing, and safe.

    But while you have a keen eye for spotting dangers in your work, risk can be easier to overlook in your business. Following are five of the biggest risks a freelance engineering practice might face and tips for managing them.

    Risk #1: Unhappy clients

    Disgruntled clients aren’t just a problem for your reputation. When projects get rocky or business relationships deteriorate, people sometimes look for compensation in court. It happens more often than you think. A survey from the U.S. Chamber Institute for Legal Reform shows that 43 percent of small-business owners have been threatened with or involved in a civil suit (www.instituteforlegalreform.com/resource/us-legal-system-is-worlds-most-costly-according-to-a-new-study).

    Manage the risk: You can’t make everybody happy, but you can protect your firm with the following steps:

    Put everything in writing — Freelancers are more likely to conduct business on a handshake, but that’s usually a mistake. Contracts protect both parties by making sure everyone is on the same page. If a client asks for changes verbally, document those requests, too.

    Get insurance — Professional liability insurance may cover court costs and attorney fees if an unhappy client sues you over your work.

    Ask for help — Run your work by a trusted colleague. This may cost you time and money, but it’s better than paying for a lawsuit.

    Respond to problems immediately — Pay attention to your client’s attitude. Increasing complaints, confusion over scope, and persistent questions can be a sign that you’re headed for a dispute.

    Risk #2: Cyber criminals

    Think hackers aren’t interested in your freelance business? Think again. According to Property Casualty 360, 62 percent of all cyber attacks hit small- and medium-sized businesses (http://www.propertycasualty360.com/2015/05/27/small-mid-sized-businesses-hit-by-62-of-all-cyber?page_all=1&slreturn=1491337562). Plus, a recent Kaspersky Lab study found small businesses spend $38,000 on average to recover from a data breach (http://media.kaspersky.com/pdf/it-risks-survey-report-cost-of-security-breaches.pdf).

    Manage the risk: If you store client information or use cloud-based software, you might also want to:

    Update your software and operating system regularly — Cyber security is a moving target. Fortunately, developers know this and release updates to address vulnerabilities.

    Use best practices for your passwords — Your passwords are your gatekeepers. Make sure they are difficult to crack by using a combination of letters, numbers, and symbols. And never use the same passwords for your personal and business accounts.

    Encrypt your data — Even if a criminal is able to access your data, encryption makes it hard to use. Check out some encryption software reviews in PC Magazine (www.pcmag.com/article/347066/the-best-encryption-software-of-2016).

    Work from a secure connection — Before you enter data anywhere on the internet, check the URL for “https,” which signifies a secure page. You might also want to invest in a virtual private network (VPN) to make your connection point invisible.

    Risk #3: Inconsistent income

    Freelancing can be a feast-or-famine endeavor, especially when you’re first starting out. And while cutting expenses can sometimes get you through the lean times, what happens when you’re low on funds and you’re hit with unexpected expenses?

    Manage the risk: Rather than getting caught unprepared, consider these ways to protect your savings:

    Manage your cash flow — You can keep money coming in by requiring a deposit and offering a monthly payment plan. But you also want to set aside a portion of each payment for fixed expenses such as utilities and rent. Then set aside another chunk for your savings.

    Outsource mundane tasks — For a freelancer, time is best spent delivering on a project or drumming up new business. Hire other people for the jobs that aren’t central to those tasks. Just remember to account for your independent contractors in your prices. Also check for insurance when you hire independent contractors. It’s a good indication that they are financially stable and can cover mistakes in their work.

    Prepare for emergencies — A disaster can set your project back days, even weeks. Develop a business interruption plan that includes temporary facilities, backup generators, and business interruption insurance.

    Risk #4: No benefits

    Before you went solo, your employer most likely offered benefits such as health insurance and retirement savings. Now you have to cover those things out of your profits. If you don’t plan for it, those costs can really sneak up on you.

    Manage the risk: You probably can’t pay for all the perks your employer may have offered, but you need to at least cover the following:

    Retirement — Self-employed people have a number of retirement savings options, according to the IRS. Some of these may be more appropriate for a business owner with employees (www.irs.gov/retirement-plans/retirement-plans-for-self-employed-people).Use these tips from Nerdwallet (www.nerdwallet.com/blog/investing/4-retirement-plan-options-selfemployed) to figure out which is right for you.

    Health insurance — Right now, you’re still required to carry health insurance. Unfortunately, open enrollment has passed, but Healthcare.gov (https://www.healthcare.gov/self-employed/coverage) indicates that some states may still let you buy insurance on the marketplace. Otherwise, you may want to work with an insurance agent to find affordable coverage.

    Disability insurance — Your job may keep you mostly at your desk, but if you do go to construction sites, you know how dangerous they can be. That may make disability insurance a smart investment. Again, talk to an insurance agent to learn about your options.

    Bonus tip: Some experts recommend putting at least 10 percent of your pay into a retirement account, so factor that in when you set your fees.

    Risk #5: Scope creep

    A client asking for minor tweaks might seem small, but when those requests start adding to your timeline and budget, you have a bad case of scope creep. And that’s a problem that can eat away at your profits.

    Manage the risk: Fight scope creep with a written contract that:

    • outlines the scope of the project,
    • requires written approval for additional work,
    • lists the deliverables for each project phase, and
    • includes a timeline for reassessing the scope and budget.

    Ted Devine is CEO of Chicago-based Insureon (www.insureon.com/small-business-insurance; @insureon), an online insurance agency that exclusively serves small and micro businesses. Previously, Devine held senior leadership positions at Aon and spent 12 years as a director of McKinsey & Co. To learn about other risks freelance engineers may face — and the insurance policies that can address those risks — check out Insureon’s Policy Buddy at www.insureon.com/resources/policy-buddy and take a two-minute quiz to get started.