Learn more about financial risk within IR35 here.
The right mindset
- You must have a risk/reward mindset. Your end client is engaging you to reduce their risk, by transferring it to you. They may not want the risk of employees who are difficult to fire, they want to let you go on a moment’s notice. They don’t want the financial risk of finding work for specialists once a project ends. If a project presents a financial risk, you might be able to reduce that risk by working for a fixed price. If you break something, they want recourse.
- You must be comfortable that risk is a key aspect of being a consultant/contractor and be open-minded to shouldering risk. If you find risk stressful, remember that this stress is simply unmanaged risk. Take a pragmatic approach to risk, and read around the subject – much has been written on the topic. For starters, it might be useful to think that risk can broadly be accepted, avoided, mitigated or transferred – can this stimulate your thinking towards risk?
Red flags
- Your contract does not make you responsible for fixing errors without charging additional fees.
- The contract does not allow the client to withhold payments if your work fails to meet standards or specifications.
- You are not liable for your own negligence, or the client does not mandate professional indemnity insurance.
- Reclaiming expenses using normal employee processes. You should invoice your client for expenses.
Day to day activities and influence
- Take out business insurances. PI is very well known, but you may also wish to consider other continuity products such as key man insurance, health insurance, etc. You are looking for a suite of insurances that allow you to reduce your financial risk.
- When pitching for a new contract, can you improve your position/offering by making a significant additional investment? For example, investing in equipment, training, certification, resources, etc. Instead of charging these directly back to your client, can you blend the cost into your overall proposal?
- Even if you can’t directly attribute the investment to a specific contract, is it something you’re willing to risk investing in for future returns? For example, would a well-respected certification allow you to increase your rate?
- Can you give your client a fixed price/scope proposal?
- Can you see other opportunities to remove risk from your clients? If you see another project or process at risk, can you offer to resolve this (via a new contract)?
