Many businesses are born from a single brilliant idea. As that idea is put into motion, a company grows — and in some situations that growth is rapid. Along with this expansion, however, comes the reality of risk.
There are approximately 30 million small businesses in the United States, according to the Small Business Administration. The owners of those businesses face many risks. Would you be prepared if a disaster struck?
You may initially think you are, but there’s a good chance that additional considerations need to be made to fully protect your business against loss. Regularly assessing potential risks and modifying plans can help you safeguard your business and stay nimble in the face of evolving threats.
Select a business entity carefully
Maybe you started your business with a specific business entity in mind — for example, as a sole proprietorship. But as your business expands, this structure may no longer fit your needs. Ask yourself regularly if your current business entity setup is still relevant, and whether you need to evolve. Thinking through this question will help minimize future risk.
Many business structure options exist, such as limited liability corporations, limited liability partnerships, general partnerships, S-corporations and C-corporations. Every option has its unique pros and cons, and whether an option is relevant for your business will depend largely on individual business circumstances.
Selecting the right structure allows you to create a wall between your personal assets and your business — something that’s critical when considering potential exposure. Speak with an attorney to discuss the details of your business and which business entity is the best fit.
Protect personal assets carefully
Manage your personal assets strategically to keep them safe. Most business owners hope they’ll never face a lawsuit or other situation that could threaten their assets, but it’s important to consider this potential risk.
For example, you might decide to put investments into a trust or keep some assets in the name of a spouse or child. For smaller businesses, it’s often advised to keep separate bank accounts for business and personal expenses.
Keep diligent track of credit
Your personal credit may intersect with your business credit, depending on the selected business structure. This is a good reason to spend time carefully considering the various entity structures and which one is right for your situation.
For example, operating your business through a specific type of entity may help keep losses and liabilities away from your personal balance sheet and off your credit report. At times, business loans, including business credit cards, may require a personal guarantee, which means that you’re personally liable for any debt incurred on the account.
Business owners policy
A business owners policy will combine three essential insurance coverages for your small business:
- Business property insurance for the location you rent or own and any property like tools, equipment and inventory
- General liability insurance for the cost of property damage, bodily injury or advertising claims
- Business income (interruption) insurance for lost income if you are unable to operate due to a covered event, such as a fire or theft
Interested in gaining more knowledge on business owners policies? We explain them in more detail here.
Think outside of the box regarding professional liability insurance
Doctors, lawyers, accountants and other professionals aren’t the only ones who need professional liability insurance. Anyone who has a special skill or knowledge is considered a professional and could be at risk for a lawsuit alleging malpractice or negligence. For example, wedding planners and hairstylists have faced lawsuits even though most of these businesses don’t traditionally think of themselves as needing professional liability insurance.
Additionally, if you expand your business to cover a new industry, check with your insurance professional to make sure your existing policy extends to the new business.
Plan for business interruptions
If something keeps you from operating your business, such as a fire, hurricane or another covered event, it’s critical to have business interruption insurance to assist with expenses. When estimating your business income coverage limits, use the annual gross earnings listed on your business financial records.
Not having this coverage could put you in a less-than-ideal situation. For smaller businesses, this could mean tapping into personal savings to keep operations flowing and pay employee wages.
Since business interruption insurance only kicks in for a covered event, talk to your insurance professional about adding flood, earthquake and sewer backup coverage to your policy. For example, just a few inches of water can cause tens of thousands of dollars in damage (and you won’t be covered if you don’t have flood or sewer backup insurance).
New year, new… business?
While any time can be a good time to start your small business, the start of a new year offers a great environment to reflect on the year ahead – both the expected wins and the risk of potential losses. A thorough, honest review can help you plan for growth and success over the next 12 months.
To offer even more guidance as you get your small business started, here are six New Year’s resolutions that can protect your business and help it thrive, regardless of what the new year brings.
1. Employ strong cybersecurity practices
Data breaches and other cybercrimes are becoming increasingly common and costly. Here are some ways you can protect your business in the coming year, as suggested by the Federal Trade Commission:
- Install antivirus software and antispyware on all company devices, and always download the latest updates.
- Train employees on cybersecurity principles.
- Change passwords regularly and don’t make them obvious.
- Back up your business data to an off-site location or cloud storage.
- Secure your Wi-Fi networks.
- Develop a cyber risk management plan.
- Talk to your insurance professional about cyber insurance.
If you’d like to learn more about cyber insurance, or why it is important to your new business, find more information in our blog, Why Cyber Insurance Is Essential To Your Small Business Risk Management Portfolio.
If you’d prefer to listen in, tune in to our on-demand webinar, Insurance in the Digital Age: Cyber Liability, featuring Chief Insurance & Acquisitions Officer Adam Dyer and Marketing Analyst April Canada.
2. Develop a disaster plan
Planning ahead for a disaster can mean the difference between staying in business and losing everything. And it’s one of the easiest ways to help ensure your business survives and recovers.
Sit down and think about the kinds of disasters that are most likely to affect your business, whether they're hurricanes, cyber threats, wildfires, earthquakes, tornadoes, labor strikes or something else. Then, work through each scenario and figure out how you can minimize the potential damage — including transferring the risk via smart insurance strategies.
Before disaster strikes, review your insurance policy with your insurance professional. They can explain your deductibles, your coverage limits, and what you are and aren’t protected against.
3. Evaluate your need for flood insurance
Damage caused by many types of natural events, such as lightning or wind, will usually be covered by commercial property insurance. But you need a special policy if you want protection from flood damage. For example, flooding caused by a hurricane-generated storm surge typically isn’t covered under a standard commercial policy.
Flood insurance is available from the National Flood Insurance Program (NFIP) and some private insurers. NFIP coverage can’t be obtained directly from the federal government; you must purchase it from a qualified insurance professional. Typically, there’s a 30-day waiting period before coverage starts, so plan ahead.
4. Shield you and your business from mistakes
In today’s litigious society, no one is safe from lawsuits. What you think is a simple mistake can be deemed a “wrongful act” and result in a lawsuit. A directors and officers (D&O) liability policy specifically covers “wrongful acts,” such as an actual or alleged error, misleading statement, neglect or breach of duty.
Errors and omissions (E&O) insurance is another type of policy that can fill a gap in your commercial general liability policy. It covers service errors, contract performance disputes and other professional liability issues.
5. Learn something new
As a small business owner who wants to remain competitive, you need to continually expand your skill set and keep up with the latest tools, techniques and technologies. This helps to enhance innovation and promote operational efficiency.
Seek out professional development opportunities online and in your community. Also, make sure a culture of continuous learning is encouraged at your business and passed along to all employees.
6. Give back
Incorporate charitable giving into your business plan. It provides a sense of fulfillment and can also help promote your brand. You can give back in one of two ways: your time or your money.
Giving back shows you understand how your business fits into the broader community and highlights a commitment to improve that community for everyone. Consumers would much rather support a business that cares about the well-being of the local community than a company that simply offers services or products.
As your business’s needs change, so should your insurance.
At the start of the new year, carve out some time to weigh the risks you and your business face if the unexpected happens. Then, be proactive and contact your trusted insurance professional to review all policies, understand your coverages and make updates for the upcoming year.
The bottom line
You’re passionate about your company’s future. One way to ensure that your company continues to thrive is to stay ahead of potential risks.
Get the coverage you need to safeguard your continued well-being and the success of your business, year after year. Have any questions? We’ll be happy to help. Contact us here.
Blue Ridge Risk Partners is a top 75 independent insurance agency in the United States. With 22 offices and counting throughout Maryland, Pennsylvania, and West Virginia and access to hundreds of carriers, we are able to meet your unique insurance needs.