Words of wisdom from our business insurance experts.
Taking the first steps to start a business can be one the most difficult decisions you make in life. It's liberating and terrifying at the same time. But in my opinion, it's totally worth it.
You'll (probably) go from doing a job with a narrow set of responsibilities to wearing all the hats. From accounting and legal to compliance and insurance, the list of responsibilities stack up and can take your attention away from building the business. It can be exhausting.
If you raised some money, you may rush to check some boxes without thoroughly thinking it through. If you didn't, then funds may be tight causing you to be careful with spending and conscience of price more than anything.
In my experience, I've had to rely on trust and expertise more than anything with the departments I either didn't understand, or just didn't want to do (legal, taxes, etc.). If I have a trustworthy relationship with the right people, then I sleep better at night knowing things are taken care of.
Today, there's a million LegalVrooms and cookie cutter websites designed to check a box that you need to fill. They usually have bright colors with witty messaging that say "click here, hit pay and you're all set". Often these resources are cheap, easy, and well, human-less. But is that the best way to run your business?
If it's too good to be true, then it's probably too good to be true.
Insurance is a box everyone is trying to check, and data shows a large portion of founders don't even check it until they absolutely must. It's notorious for long questionnaires, lots of back and forth, and can be a big expense. Not to mention a lot of the people "selling" insurance are old, crusty, and boring individuals.
No matter how you view insurance, the reality is - risks are unpredictable, and frankly unavoidable. Businesses in every industry experience losses and insurance may be the only tool that protects a business from failing. It's annoying, but it actually matters.
Business owners and executives deserve a relationship with their insurance advisor and a team of people that have their back.
A true partnership with your risk management team can protect the operations, people, and property involved for the unforeseeable (it can also be a great tool to attract investors - see D&O insurance). So, when does a business need to get smart about their insurance partner? Here are the top reasons any business should consider purchasing insurance:
#1: You sold your first product or signed up a new client.
As soon as your product is in the hands of another person your business is responsible for the unforeseeable. In addition, if you are in the service industry like a consultant or lawyer, the moment you give someone advice or information is when you may be responsible. The three key insurance policies covering these operations are General Liability, Product Liability, and Professional Liability (Errors & Omissions).
ADVISOR TIP: You can package these policies onto one commercial policy to keep costs down - check out a Business Owners Policy.
#2: You've hired your first employee.
The moment you tell another person to do something for your business is the moment you are responsible for them. Depending on the state, you may be legally required to carry insurance (we're looking at you California). The two key insurance policies covering these people are Workers Compensation and Employment Practices Liability Insurance (discrimination and wrongful termination).
ADVISOR TIP: A sub contractor and volunteer carry the same risk that a full time or part time W-2'd worker.
#3: You just signed a lease to your new office (or Coworking space).
99.9% of all leases include a section requiring tenants to carry insurance. Once you set up a desk or office inside a building owners space, you are responsible for injuries to third parties, and damage to property. The two key insurance policies that are usually required on a lease are General Liability and Commercial Property (business property, tenant improvements, etc). They also may require Business Automobile and Workers Compensation insurance.
ADVISOR TIP: Leases can be long - open the lease PDF and hit CTRL F on your keyboard. Type in "Insurance" to find your requirements.
#4: You established a new partner or vendor that requires it.
Over 30% of small businesses do not have insurance. That's a startling number and it's forcing businesses to require their partners to carry insurance. Smart businesses will require a plethora of insurance in order for vendors and partners to do business, so it's smart to review these contracts before you sign the dotted line. They will require things like Commercial General Liability, Business Automobile, Cyber Liability, and Workers Compensation. If your business doesn't have coverage it can be a deal breaker for a big partnership.
ADVISOR TIP: Speak with our advisors about the most common requirements within your industry and get prepared.
#5: You raised a round of funding.
Any smart investor will be thinking about protecting their investment and their personal assets. If you're going into fund raising, you know your objective is to impressive potential partners. Showing them you have adequate insurance covering the business and the board members is a great tool. Directors & Officers insurance and a comprehensive business insurance package will certainly be required if you are raising money.
Speak to an advisor today and learn more about key coverage, the process to get quotes, and risk management tools to protect your business.