Small businesses face many risks, some of which have significant financial implications. If you’re not well prepared, you can be quickly thrown off balance, crippling your operations. You can get help if you know where to look but it’s not always easy. Unfortunately, many businesses fail in their first few years through a lack of robust financial planning.
Risks come in many forms for a small business. Something as seemingly small as a delayed payment for a service can have huge implications. A fully researched risk assessment before you start operating is essential to minimize the vulnerability of your business. Something as simple as using an invoice template such as the one developed by Jobber can significantly help with timely payments. Not only do they help with accuracy and professionalism, they prompt you to follow industry best practice. At the other end of the scale are deeply complex insurance policies from mainstream providers for other risks like fires, theft, natural disasters, property damage, data breach, workers’ compensation, and vandalism. This article fills you in on all you need to know about insurance for small businesses.
Benefits of insuring your business
Business insurance coverage safeguards your business from casualties due to incidents that may happen during your business’ normal operations. With it, you guarantee safety to your employees and your property in case of injuries or natural disasters. For that and other reasons, it’s essential to safeguard your resources by ensuring that you’re adequately insured. Here are the top benefits of insuring your business:
- Shields your company from the unexpected: Although you may not predict the future or wish for anything wrong to happen in your organization, emergencies do happen. They usually come unannounced at the most unexpected time. It’s therefore reasonable to prepare for the unexpected by taking insurance to manage and get through such situations swiftly.
- Efficient internal business management processes are essential to every company, regardless of the industry or niche you operate in. Innovative technology is highly beneficial to equip you to deal with daily tasks as well as more complex insurance and financial management duties. Bespoke solutions can be found for even the most unique business. Take this example of restoration management software for instance, for companies offering a specialized service within the construction industry. Use these applications to your advantage to enjoy easier appointment scheduling, easier and faster communication, and more efficient payment processing.
- Lowers financial losses: Various types of insurance guard different aspects of your business’ financial status, from repair costs to the legal price of litigations. Without it, you may put your finances in a crisis as you may need to cover them personally.
- Helps you attract more customers: Today’s business world is based on trust and reliability. With insurance coverage, customers develop trust and confidence in your products and services. It amplifies customer satisfaction and offers compensation if things don’t go well. When customers feel safe, they’ll never stop choosing you over your competitors if they realize they can rely on you. This enables you to attract more clientele and generate more revenue for your business.
- Enables you to comply with legal regulations: Some insurance coverages are requisite for all small or big businesses. If you don’t purchase them, you violate the law and may be fined, jailed, or closed down.
- Protects your employees: Your workers are one of the most valuable assets in your business. They’re the chief contributors to your business’ success. It’s, therefore, imperative to protect them. By doing so, your employees feel secure and cared for. This makes them happy, and they become more productive. Moreover, this factors into employee retention.
- Helps you handle business liabilities: Doing business comes with many risks. There’s no assurance that you’ll keep making profit year-in-year-out in your industry. At some point, your organization may face sudden loss. In that case, insurance may assist you in mitigating the risk by providing financial help. This helps keep your business running even in such predicaments, which could be challenging to sail through without the cover.
Types of insurance for small businesses
There are different types of insurance used to cover specific risks. What you need depends on your industry and the challenges you’re likely to face. That said, here are some types of insurance you may need to protect your business:
- Errors and omissions (E&O) insurance
This is also known as professional liability insurance. It covers any errors that may occur in the professional service provision of your business. The mistakes may be due to an inability to meet a standard of care, violation of contract, or failure to provide a promised service on time. You may need this if you provide professional services or advice. This is pertinent to accountants, financial advisors, architects, and software developers.
- Property insurance
This is one of the most vital insurance protections you may want to purchase for your business. It covers your business’ properties, including your premises, whether you own or rent. Ideally, property insurance covers destruction resulting from fires, theft, and wind-related issues. However, this type of insurance doesn’t protect instances like:
- Theft by workers
- Flood or earthquake damage
- Product defect as a result of manufacture or design fault
- Theft of cash from your site
- Equipment failure due to power surges, wear out, or employee error.
Therefore, if you’re likely to face the above risks, you can additionally choose a policy that covers them.
- General liability insurance
This protects you and your property from expenses for asset damage claims against your company and bodily harm resulting from your products, services, or regular duties. In addition to that, it also covers property damage to a different person’s possessions.
- Employees’ compensation insurance
Unless you don’t have employees in your company, having workers’ compensation insurance is essential. This ensures that injured employees receive medical attention and a refund for some earnings they lose while unable to work. Furthermore, it protects you as an employer from cases of employees being injured while performing their daily tasks.
- Business interruption insurance
Usually, your business’ operations may be interrupted after a natural disaster like lightning or a storm. During this time, you may incur losses as you may need to stop doing business and do repairs and replacements. This type of insurance covers you for loss of revenue when you can’t conduct business as usual.
How to ascertain the kind of insurance your small business requires
The type of insurance your company requires to prepare for the unexpected depends on your unique business needs and state requirements. Before purchasing any insurance cover, it’s best to do a thorough analysis to ensure you get the correct coverage. With this, you’re sure your organization is financially secure. Here are some tips for your consideration:
- Conduct risk analysis: Risk analysis assesses the possibility of an unexpected detrimental event that can affect productivity and customer relations. Such information enables you to determine the type of insurance cover that can provide the proper protection. For instance, if you’re in a place affected by earthquakes, you may go for comprehensive earthquake insurance.
- Evaluate your legal obligations and business resources: Every state has specific requirements for business insurance coverage. Some are a must for you to have. For this reason, consult authorities in your state to know what needs coverage. In addition to that, you need to evaluate the kind of assets you have. For instance, if your business deals with products worth a lot of money, like jewelry, you may want to protect them against robbery.
- Choose the level of your insurance: Based on what you want to protect, you may go for basic or comprehensive insurance. The former covers some situations of potential damage, while the latter covers all aspects. This means that the premiums are high compared with basic. Before settling on any level, determine how costly the damage can be and the likelihood of it occurring. This helps you not to outspend on something you may not need and avoid missing coverage necessary for your protection.
How to obtain insurance for your small business
Acquiring insurance for your small business isn’t nerve-racking if you know how to go about it. Here are steps you may want to adopt:
- Carry out your research: Before deciding on any insurance cover, you’d want to familiarize yourself with those available for small businesses.
- Evaluate your dangers: Determine all the possible risks you may face. This directs you to the kind of insurance you may require.
- Have all the necessary documentation: An insurance broker may need proof of the number of workers in your company, a record of your business properties, and the tools you use. Moreover, it may want to know about your office furniture and location.
- Identify an insurance broker: Insurance brokers are well conversant with the kind of protection you may need. Also, they can answer your questions and give you a quote that suits your budget.
- Review and purchase: You may want to evaluate your broker’s coverage options and quote. Choose what will give you maximum protection and what’s within your budget, then make your decision.
The cost of small business insurance
There’s no fixed price for insurance costs. Insurance companies use several factors to determine how much you may need to pay. Some key factors include:
- Your industry and the related risks
- Number of workers
- The location of your business
- Claims history. You may have to pay higher premiums if you have many claims.
Small businesses are faced with significant risks. If you don’t protect your business, you may end up incurring losses, leading to closure. Therefore, it’d be good to have your company covered by insurance. The insurance industry exists to enable you to handle these risks and claims for losses when things unluckily go wrong. Therefore, try to understand the types of insurance covers and keep your business running even after interruptions occur.
- “Business Risk” Source: https://www.investopedia.com/terms/b/businessrisk.asp#:~:text=Business%20risk%20is%20the%20exposure,converge%20to%20create%20business%20risk.
- “Business Insurance”, Source: https://www.investopedia.com/terms/b/business-insurance.asp#:~:text=Key%20Takeaways&text=Businesses%20seek%20insurance%20to%20cover,known%20as%20%22commercial%20lines%22.
- “7 Types of Insurance You Need to Protect Your Business”, Source: https://www.entrepreneur.com/article/241026#:~:text=Product%20liability%20insurance.,by%20one%20of%20its%20products.
- “Types of Small Business Insurance”, Source: https://www.forbes.com/advisor/business-insurance/types-of-small-business-insurance/
- “Risk Analysis”, Source: https://www.investopedia.com/terms/r/risk-analysis.asp#:~:text=Risk%20analysis%20seeks%20to%20identify,assign%20numerical%20values%20to%20risk.
Patrick Norris is a financial advisor. He has been advising multiple clients for more than 14 years. He also writes blogs to share tips for managing finances. In his free time, Patrick enjoys hiking with friends.