Written in Partnership with Amir Bakian
Big corporations receive a lot of attention when it comes to creating jobs, but small businesses employ more people, not to mention they’re more resilient during difficult times. Across the United States, cities, states, and regions have made great efforts to highlight local entrepreneurship. Successful businesses give back to the local community in the form of paychecks and taxes. The vast majority of small businesses tend to be entrepreneurial ventures where the promoter has invested their savings in getting their startup off the ground. No matter how many people work in the organization – one, two, five, or ten – the business creates an economy where once there was nothing.
Sad to say, small businesses are especially vulnerable to risk because of their size and age. The biggest risks and threats that companies are facing today are severe skills shortages, lack of inventory, inflation, and data breaches, to name a few. As opposed to larger ones, small businesses don’t invest in risk management because it diverts invaluable resources from more business-minded pursuits. This is a pity because even the smallest hit to the bottom line can have a big impact. Nonetheless, a prudent manager should pay attention to safety concerns. Purchasing insurance can lessen the financial impact of adverse events.
Insurance Is an Essential Safety Net Every Entrepreneur Needs
Running a business is risky. Entrepreneurs face several risks, including bankruptcy, financial risk, reputational risks, and so on. Insurance is a safety net, not an investment. Whether you’re a risk-taker or are more risk-averse, insurance can help you meet your goals. When starting a small business, there are many other urgent needs competing for your attention besides insurance. Insurance isn’t an optional luxury but a must-have. Good risk management leads to lower premiums. Insurers charge lower premiums for businesses that are well-run. When everything works harmoniously, obstacles, problems, and frustrations diminish greatly.
It’s important to have small business insurance because:
- It offers protection during a cash flow crisis. Cash flow is notoriously difficult for small businesses to manage. You don’t have enough money to cover for payroll or other operating expenses. Insurance provides a solution to cash flow by protecting the business against credit risk.
- It helps mitigate risks due to third parties. An organization can experience an adverse event – operational disruption, data breach, reputational damage – by outsourcing certain services. Financial losses could lead to the business’ downfall.
- It offers protection from legal liability. A lawsuit is a lengthy process with multiple fees. If you lose, you may have to pay the litigation costs of the other party, which will be extremely expensive. Insurance covers any payouts you’re responsible for if you’re found legally liable.
Small businesses often work on a small budget, so they forgo certain types of insurance that aren’t required by the law. It’s not mandatory to have general liability insurance, but it would be best to have coverage in place to protect the business from expensive lawsuits. Rates are likely to increase, so there’s no better time than now to find the best quote and lock in your rate. Although some pitfalls and challenges can’t be avoided, they can be mitigated with proper precautions. The immediate benefits of poor choices shouldn’t outweigh the costs of dealing with the consequences.
Small Businesses Often Need More Than One Insurance Policy
Insurance is required by the law. The federal government mandates certain types of insurance, namely workers’ compensation, unemployment, and disability insurance. Other requirements vary by industry. Having adequate coverage means carrying more than one policy to cover the different risks that a business can face from employees, customers, and third parties. Business owners should make sure they have insurance to cover all of the risks present in their business. In this respect, there are many types of small business insurance that can help protect a small business, as follows:
- General Liability Insurance. It helps protect against claims associated with third-party bodily injury or property damage. It will cover medical expenses and attorney fees. This coverage is also referred to as business liability insurance.
- Commercial Property Insurance. Buildings and their contents are essential to any business. This coverage protects owned and rented buildings (and equipment) against events like burglary, fire, or flooding.
- Commercial Auto Insurance. It’s needed to cover the cars, trucks, vans, etc., needed in conducting business. If an employee drives a vehicle for business purposes, they have the right to insurance. The auto policy can be customized with coverages.
- Professional Liability Insurance. It helps protect professionals (lawyers, accountants, physicians, and so on) against negligence or other claims initiated by clients. Most policies are written with claims-made coverage triggers.
- Data Breach Insurance. It protects a business from financial loss as a result of a data breach. It covers expenses associated with informing parties affected by the breach, not to mention offering assistance and credit monitoring.
Finding The Right Small Business Insurance Is a Vital Part of Any Business Plan
Small businesses have unique needs as far as professional liability coverage is concerned. In Los Angeles, for example, business insurance costs a different amount for each type of business. Examples of factors affecting small business insurance cost are location, type of industry, claims history, and the number of employees. With so many insurance providers on the market, it’s worthwhile to become familiar with the risks existing in the business. Insurance should guard against them. It’s recommended to compare rates, reviews, and quotes to find the right policy for your company.
Small business insurance is complex, and it takes careful consideration. To obtain adequate coverage and avoid underinsurance, it’s paramount to have a realistic evaluation of the business. The cheapest quote isn’t automatically the best choice. It’s better to pay a little extra than to fall short of what you need. Simply put, the policy doesn’t cover what you need. Insurance policies need to be reviewed annually, so it’s necessary to look over the fine print. It contains essential information to know before entering an agreement.
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