Various things can go wrong and put a small business in financially rocky waters, or worse, shut its doors. These risks are not always apparent on the surface. But small business owners should dig deep to evaluate their unique business risks and get the necessary insurance coverage to maximize their chances of coming out on the other side should something bad occur.
Every small business has unique needs; a souvenir shop, for instance, will have different insurance needs than a construction company. But no matter what kind of small business you run, by taking several steps, you can pinpoint the insurance plans that might eventually save the day.
1. Define Your Business and Identify Your Unique Risk Profile
When small business owners think about the insurance they need, they often first think about health insurance for themselves and their employees. And while health insurance is crucial, it is not the only type of health insurance small business owners should seek.
You should sit down and define your business, identify common and uncommon risks and establish a plan to mitigate those risks by researching relevant insurance options. Ideally, you should take these steps before officially starting your business, as you should protect your investment as soon as possible. Don’t wait to think about insurance until you need it. But if you’re already running your business, you can still take a step back and go through these steps. Just do so as soon as possible.
To identify risks, think about your industry, the type of work and your geographic area. For instance, if you run a catering business and have a fleet of cars for your employees to deliver food to venues, those cars will all need commercial auto insurance. If you have a dog grooming company, you will need animal bailee coverage. If you work out of a commercial property you own that’s in a flood zone, you will need commercial flood insurance. During your research, you might speak to your peers in the same line of work to see what kinds of insurance they have. But keep in mind that every organization will have a unique risk profile. There will likely be special considerations you will have to make for your company.
2. Sit Down With A Certified Advisor
While small business owners can research their insurance options independently, I advise them to sit down with a certified advisor who can guide them through the process.
Instead of relying on online quotes and advice, get referrals from fellow business owners you trust for different advisors in your area. Talk to a few advisors until you meet one that you can have comfortable, open conversations with. An advisor will be able to point out risk areas you might have missed, discern your risk probabilities and show you exactly why you need or don’t need certain coverage—so that you don’t end up over-purchasing or under-purchasing insurance.
Additionally, a trusted advisor can help you navigate a business owner’s policy (BOP), which is a bundled insurance plan that offers business owners various types of coverage. Several types of insurance these bundles typically include are business liability insurance, commercial property insurance, business interruption insurance, commercial auto insurance and workers’ compensation insurance. But again, small business owners may not need every one of these policies—and that’s where an advisor can step in to help.
3. Avoid Prioritizing Price Over Reliability
Small business owners sometimes prioritize price over reliability when shopping for insurance. Doing so can leave business owners in a vulnerable position, putting their livelihoods at stake.
For instance, the owner of a company with a fleet of trucks might think that it’s a no-brainer that they need commercial auto insurance. So, the owner searches different policies online and goes with one of the less expensive options. But what the owner doesn’t realize is that each employee who will be driving each vehicle must be named on the policy. If an accident occurs in the future with an employee who was not named on the policy, the insurance won’t cover it—resulting in a lot of out-of-pocket fees for the owner.
4. Read the Fine Print
This brings me to my next point: Read the fine print.
It’s not just low-premium plans that could be missing crucial coverage points. Sometimes, small business owners purchase an insurance plan with a high premium and think that just because they are paying a lot, it means they are entirely covered. Unfortunately, this is not always the case. High-premium plans might not provide the full coverage a business needs in a particular area.
Do your due diligence and read the fine print of every policy before you sign it. If you’re working with a certified advisor, they will read the policies and inform you about any causes for concern.
5. Frequently Reevaluate Your Business Needs
As businesses evolve, so do their insurance needs. That’s why small business owners must frequently evaluate their business needs and adjust their insurance coverage as needed.
My recommendation? Make a habit of assessing your business quarterly, as well as any time you add or remove products, services, locations and employees, to name key factors. Every change in your business creates new possibilities for liabilities that your existing insurance plans might not cover. By staying on top of changes and getting the right coverage at the right time, you can return to growing your business with peace of mind.