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6 Common Risks for Consulting Firms

Nov 30, 2022 · 6 minutes to read

Group of business persons talking in the office.

Consultants face unique workplace risks. Whether you’re a one-person consultancy or a firm with a dozen employees, you will likely want to think about risk management for your consulting business. The strategies you put in place can help you prepare for and possibly avoid many of the challenges facing the consulting industry.

Let’s review six common risks that consultants often face and ways to address these issues, including buying consulting insurance.

1. Unhappy clients

Even the best consultant probably can’t make people happy 100% of the time. An unhappy client could happen for any reason, from a small mistake in your work to a major breach of contract. And sometimes, a client might be dissatisfied for seemingly no reason at all!

Common causes of unhappy clients:

  • Missed deadlines
  • Undelivered services
  • Cost overruns
  • Failing to meet expectations
  • Using sub-par contractors

How you handle unhappy clients can hugely impact your consulting business. It is possible to turn a negative situation around with careful negotiation and communication. Setting expectations early and maintaining open communication throughout a project can often help consultants avoid many issues.

However, you might not always be able to avoid unhappy clients and the claims they might bring against your business. For this reason, you may want to create a plan for responding to negative online reviews, bad press, or expensive lawsuits.

2. Errors in your work

Mistakes happen to even the most experienced consultants. However, even a tiny error or miscalculation could completely derail a project.

Errors could add unnecessary expenses to a job, such as:

  • Redesigns
  • Work needing to be redone
  • Job interruptions and delays
  • Needing to order additional materials
  • Overtime rates

While mistakes may happen, you should do everything you can to avoid them. Risk management for consulting businesses often involves putting steps in place to catch errors or omissions before they reach a critical stage. If something still slips through the cracks, your risk management plan could help you address the potential fallout.

3. Employee injuries

Your employees are one of your most valuable assets. Without them, projects could be delayed, and work gone unfinished. Whether they’re working face-to-face with clients or behind the scenes in your office, caring for your employees can help your business succeed.

Common causes of on-the-job injuries:

  • Vehicle accidents
  • Slips, trips, and falls
  • Repetitive motions
  • Machinery and equipment

Workplace injuries and serious illnesses could temporarily put members of your team out of commission. You might consider putting a plan in place to help your consultancy cope if this happens. A clear handover strategy may make it easier to manage the workload until your employee has recovered and is ready to return to work.

4. Unpredictable cash flow

Consultant work is often seasonal or tied to other factors. One of the biggest challenges facing the consulting industry is how unpredictable the job can be. Changing client behavior, market ups and downs, and fluctuating client volume can all make it difficult to create a steady income.

Strategies for managing your day-to-day cash flow:

  • Set clear payment due dates with every client
  • Collect partial payment or a deposit before beginning work
  • Establish an emergency fund

A strong professional network helps many consultants secure contracts during lean times. Existing clients and colleagues could provide you with referrals that lead to future business. You may also invest in solid advertising strategies that you can turn off or on as you need more or fewer leads.

5. Data breaches

Cyberattacks on small businesses are a growing risk. A breach could result in lost data and unnecessary expenses, along with serious damage to your professional reputation.

Common cyberattacks and risks include:

  • Viruses and malware
  • Ransomware
  • False billing scams
  • Phishing
  • Employee error
  • Server crashes

Many small businesses take steps to help prevent data breaches and other cyberattacks. Installing (and updating) antivirus software on your system, using complex passwords, and educating yourself and your employees on common risks are good places to start.

Depending on the data you collect and store and the industry you work in, you might consider hiring a cybersecurity expert to help ensure you are well protected. They may be able to suggest more sophisticated measures for protecting and backing up your data.

6. Scope creep

Has a client ever asked you to deliver work or put in extra hours beyond what’s been agreed upon in your contract? This extra work, known as scope creep, can be a tricky problem for consultants to navigate. It may be tempting to just do the work rather than have a potentially awkward conversation about payment, but scope creep can eat into your profits and delay other projects.

Ways to avoid scope creep:

  • Set realistic expectations from the first meeting
  • Clearly detail deliverables and due dates in your contract
  • Update clients about issues or roadblocks as they occur
  • Include a scope creep contingency (fees and project extensions) in your contract, just in case

It can be hard to say no to a client, but completing extra work usually backfires. Clients may come to expect free work, which is a surefire way to jeopardize your business finances.

Insurance solutions for consulting firms

Beyond putting policies in place to help reduce risk, many consultants also buy business insurance to protect themselves. Consulting insurance creates a safety net that could help rescue your small business from risks that might otherwise ruin your finances or force you to close up shop.

Every consultancy is different, but many consider the following types of consulting insurance:

Professional Liability/Errors and Omissions

This coverage protects professional service providers from potentially devastating financial damages resulting from alleged negligence or error in the delivery of their services.

General Liability

This coverage protects businesses against claims made by an outside party regarding injury or damage to their property.

Workers’ Compensation

This coverage provides protection for employers if an employee suffers a work-related illness or injury.

BizInsure makes buying consulting insurance quick and simple. Answer a few questions about your business, compare policies from A-rated insurers, and buy the coverage that’s right for you—all online in about 10 minutes!

Get your free online quotes today.

As with any insurance, coverage will be subject to the terms, conditions and exclusions contained in the policy wording. The information contained on this guide is general only and should not be relied upon as advice.
The number of quotes provided varies between products, occupations and other underwriting factors determined by the insurers.
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