Let’s face it: starting and maintaining a business is expensive. Before you even open your doors, there are plenty of upfront costs such as accountants, lawyers, buying equipment and hiring great employees. Then once the business gets going, it seems like every time you turn around, you have to pay for something. Whether it is a website hosting fee or the latest software, you might feel as if you are constantly owing money.
With so many other expenses, many small and medium-sized business owners debate on whether or not they should get a business insurance policy. Some industry’s have mandated types of insurance – workers compensation insurance, third party personal injury insurance and some forms of personal liability depending on the business. Some hesitate because they do not understand what it is or they think they already have enough insurance with the mandatory business insurances the law compels them to have.
So what is the answer? In this article, we will examine the pros and cons of the different types of business insurance to show why you may or may not need business insurance.
Pro: Peace of mind
Business insurance is a way to manage risk. Business insurance usually offers most owners the much-desired peace of mind. Even if the worst should happen your loss will be minimal, and you will not take as hard of a hit as your might otherwise.
Depending on where your business is, you may feel safer and more secure with a burglary policy or a building and contents policy. Insurance over your stock or debtors may be needed and sometimes key person insurance is a good idea in case your star employee leaves the business.
Con: Extra cost
As we discussed early, there are plenty of large expenses that come with starting and maintaining a small or medium-sized business. You have so many upfront costs, and most businesses take a few months (even years) to become profitable. Business insurance can seem like an unnecessary cost that could be better spent on hiring more employees or reinvesting in the products.
This is not always true, but it depends on many different factors. Business insurance is different for each business, and your industry, location, hours, business operation and employees could affect how expensive or inexpensive your insurance is.
Paying for insurance as a struggling new business can hinder your reinvestments and profits. As a business owner, you may find it is better to take the risks and invest in your company. That is entirely up to you.
Your business is an individual one, and your business insurance policy should be tailored to match it. Luckily, most plans are flexible and can be watered down or beefed up, depending on your preference.
Business owners have plenty of options to choose from and can customise to fit their business’ needs. You might get a bundled policy with some insurance and leave out the ones you do not need or want. This can definitely help lower your deductible.
A great insurance broker will learn your business, its risks and your goals, and help you identify what bundle will work best for you.
Of course, you are not stuck with the same policy forever. If you find you want more insurance as your company becomes more profitable, you can easily take out a larger policy.
Con: Too much hassle
Let’s say the worst does happen and someone breaks into your store. You call the police, get a report, take plenty of pictures as evidence and send everything off to your insurance agency. And then you wait, and you wait and you wait a little more. Meanwhile, you had to pay out of pocket expenses, which you were not quite ready to pay for, and now you do not know how long it will be until you will be reimbursed.
Dealing with insurance companies is not always the quick, fluid process we would like it to be. Some agencies respond slowly, and when they do, they are nit-picky about how they want you to file all documents. This means that you might have to go back and forth for weeks or even months with your insurance company, and you still do not have the money.
Pro: Find better lenders and investors
When investing in a company, lenders like to take small risks. A company that is insured looks like a safer bet. Even if something does go wrong, the risk is much smaller and easier to manage. Some investors will not be willing to make any sort of deal with you unless you are insured.
Attracting a good investor can quickly get your business off the ground. You will have more money to reinvest into your business, which will then lead to better products and services that will attract more customers. More customers mean more profit.
Con: The cap
Not all policies are unlimited. If you are not financially prepared for these types of costs, your business can suffer.
In other cases, your insurance might not cover you under certain circumstances. No matter how much you pay, your insurance will not quite get you all the protection that you need.
Of course, no insurance will protect you from every liability. No matter what, owning a business is a risk. You can, however, be smart about the risks you take. Speak with a financial advisor and learn what you can do to alleviate some of your biggest risks and sleep better at night.