As the owner of a small business, you’re no doubt aware of the problems associated with keeping ahead of the bills. It seems like there’s no end to unanticipated expenses. Even the expected costs–the ones you budget for–are hard to pay at times. No matter what other bills may pop up from time to time, it’s absolutely essential to carry adequate insurance–just in case. There are a variety of types of insurance that are necessary, such as liability, health, vehicle, and workman’s comp, as well as a few others that are helpful, if not crucial. Following are a few insurance tips for small businesses.
Decide What You Need
The first thing you need to decide is precisely what your insurance needs are. As a sole proprietor, you won’t need workman’s compensation insurance, but if you have employees it’s necessary because the government requires it. Other types of insurance may also be required by the government, so you should check with your accountant and/or attorney to make sure you’re in compliance with the law. They will be able to guide you and help make sure you’re adequately covered.
Before you actually buy an insurance policy of any type, you should sit down with your accountant and/or attorney, and any partners, if you have them, and work out an in depth business plan. Try and think of all possible pitfalls and how you would deal with them. This is where you should decide on how much and what type of insurance coverage to get. If you have a destination in mind before you begin, getting there will be easier.
Be a Pessimist
When you’re figuring out your business plan, it would be a good idea to be a worrywart. Look at the down side of any potential project and pick it apart. Try and figure out what could go wrong, and any reasons that it would. Then attempt to estimate how much it would cost to make things right again. For instance, if lighting strikes your warehouse and it burns to the ground, how much would it cost to replace the building and contents? Be pessimistic in your estimates so if something bad really does happen you will have enough insurance coverage to start over again. Almost every insurance policy will contain some sort of deductible–the more your deductible, the lower your monthly premiums. Figure out how much of the cost of any potential disaster you’d be able to absorb, and then decide on the amount of your deductible.
Carry the Right Amount of Insurance
In order to make sure your business has the optimum chance of surviving you need to be adequately insured–that’s a given. However, you don’t want to carry too much insurance or you’ll be paying money each month unnecessarily. On the other hand you don’t want to be caught short if something happens and you don’t have enough insurance. You shouldn’t insure your office building for $50,000 if it’s worth $250,000–if something adverse happens it could put you out of business. However, you don’t want to carry an insurance policy for $250.000 if your building and contents are only worth $50,000, either. As you can see, it’s important to figure out exactly how much coverage you will need, and be sure and remember that this figure can be reevaluated on a continual basis. As your business grows and the cost of building materials rises, you will need to add insurance coverage. If you feel the need to downsize, your insurance coverage should reflect that, too.
After you’ve determined how much insurance you’ll need, and what type to carry, the next step is to find an insurance company you can trust–a company that will provide you with the coverage you need at a fair rate, and will have an agent available to help you if and when you need them. If you have the best insurance policy money can buy–on paper–but your agent is always ‘unavailable’ what good will it do you? Shop around for the best prices. Compare quotes from online sources as well as the more traditional brick and mortar agencies. Ask about discounts and special rates. The more you find out about an insurance company, and the policies they offer, before you sign any papers, the better chance you’ll have of getting the right amount of insurance coverage at the best possible price.
Guest post from Andy Granger. Andy writes business insurance for BusinessInsurance.org.