A fractional CFO wrote in yesterday trying to sense-check what seemed like an unreasonable demand during the contracting process with a new client.

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The sticking point was professional liability insurance (sometimes referred to as E&O - errors & omissions coverage).

An E&O policy is generally a good thing to have — just like an LLC protects a client lawsuit from coming after your personal assets, an E&O policy can protect a client lawsuit from wiping out your business’s assets (read: your cash reserve).

(Typically, for US-based soloists, a $1M policy is pretty standard, and costs $50-100/month.)

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Back to the fractional CFO - his prospect was asking for 5x that amount of coverage, and requiring that the policy be held for multiple years after the engagement.

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My suggestion was to first ask for rationale.

From there, you have three options:

1. Increase your coverage, and increase your fee to cover it
2. Stand firm in your operating procedure (e.g. the $1M coverage)
3. Walk away, especially if they can’t provide a solid rationale

He went with Option 2, and the client accepted his existing $1M of coverage on second pass.

Turns out the larger ask had been a boiler-plate contract term, established for their typically larger corporate partners, not for a one-off soloist.

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But it highlights the lesson:

Just because you’re a soloist, doesn’t mean you have to roll over to a prospect’s ask.

You might be the smaller party, but any engagement is still a business-to-business partnership.

If seemingly absurd or unjustified demands will cause a kink in your established operations, say so.

That conviction can bring clarity to the situation, and demonstrates ownership over your business.

Which further builds your credibility.

And, in turn, your confidence.

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💡

-Wes