It seems counterintuitive, but rapid growth is actually one of the downfalls of many businesses. Many small business owners have no idea how to scale their business, leading to poor performance and unhappy customers in the face of rising demand.
Similarly, many businesses fail to account for the added risks that come with a larger enterprise. More company vehicles on the road increases the likelihood of a collision. More sales increases the chances of a customer getting injured during product use. More employees makes a workplace injury more likely to occur.
It only takes one ugly lawsuit to wipe years of hard work off the board. As such, proper insurance coverage is one of the most essential components of a growing business. Keep reading as we explore some common types of business insurance and help you decide which policies are right to protect your company’s growth.
Is Business Structure Enough?
Most small business owners understand that structuring their business appropriately is crucial for protecting their personal assets against business-related claims. For example, it is often advisable to form a limited liability company (LLC) or limited partnership (LP) instead of using a sole proprietorship or basic partnership to clearly define the lines between business and personal liability.
You may be wondering: what is a limited partnership? A limited partnership is a type of business structure with a general partner and one or more limited partners. The general partner is in charge of managing the business, making decisions, and responsible for the business’ debts. Limited partners are able to invest in the business but carry no responsibility beyond their investment.
While choosing the correct business structure is an important first step in drawing lines between personal and business liability, it is not enough to protect a growing business that is increasingly exposed to risk. This is where business insurance comes into play.
Types of Business Insurance to Consider for Your Company
There are dozens of business insurance products available. Some are required by law. Many are not. It is important to have a deep understanding of each insurance type and how it may or may not benefit your company.
Commercial Vehicle Insurance
This is one of the few types of business insurance required by law across the board. It works in ostensibly the same way as private auto insurance, but covering commercial cars, trucks, vans, or any other vehicle type used in business operations. Different policies will provide any combination of bodily injury liability, property damage liability, personal injury protection, collision, comprehensive, and/or uninsured motorist protection.
Workers Compensation Insurance
Most states require workers’ compensation insurance for businesses that employ a certain number of workers. It protects your business from the financial liability of having to pay for the cost of job-related illness and injuries. It will pay benefits such as medical expenses, lost income, ongoing care, and disability settlements for impacted workers.
Health Insurance
If your business employs more than 50 full-time staff, it is required by the Affordable Care Act to take out health insurance for your workers. If you have less than 50 employees, you can access the Small Business Health Options Program instead. While the cost of health insurance is increasingly burdensome for many businesses, it can be a crucial component of attracting and retaining top talent for your growing company.
General Liability Insurance
Although not legally required, general liability insurance provides crucial protections for most businesses. It covers your business financially against claims of bodily injury or property damage resulting from day-to-day operations. General liability insurance is highly recommended if your business:
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Has a physical store or office with heavy foot traffic
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Sells products or services
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Conducts work near a client’s property
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Uses social media as part of operations
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Creates marketing materials as a part of business
In many cases, clients will not enter into a contract with your company without proof of general liability insurance.
Commercial Property Insurance
This type of insurance protects against financial loss due to natural or manmade damage to your business’ property. Coverage extends to the building in which you operate, equipment and technology your business uses, and inventory of products and materials your company stores and sells.
Transactional Risk Insurance
As your company grows, it will show up on the radar of competitors who want to acquire it to limit competition. This could lead to merger and acquisition (M&A) overtures. It is important to note that M&A often involve risks such as unknown liabilities, litigation, or compliance issues. Specific insurance products, like representations and warranties insurance, can protect against losses arising from breaches in an M&A deal. With this in mind, it is advisable to speak with a mergers and acquisitions broker to help ensure seamless integration, as existing insurance policies must be reviewed and possibly updated to ensure coverage is maintained as the business structure changes during an M&A.
Professional Liability Insurance
This type of insurance should be strongly considered by any company that offers expert or advisory services. It protects your business against claims of professional negligence. Some types of negligence that are covered include service error, poor advice, misrepresentation, breach of contract, unfinished work, budget overruns, and/or reputational damage (libel or slander).
Other Ideas for Protecting Your Business
Although proper business structure and adequate insurance coverage will do much of the heavy lifting in terms of protecting your growing business, there are a number of other tips that can take protection to the next level:
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Keep separate accounts - this is sort of business 101, but it can get tempting to cut corners and funnel business revenues directly into personal accounts. By meticulously maintaining separate business and personal accounts, there will be no paper trail suggesting misappropriation of funds.
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Asset protection trusts - by transferring assets to a trustee, valuable company assets are shielded from creditors while still allowing distributions to the owner over time. A DAPT trust is one of the best ways to legally protect company assets while still retaining some beneficial interest to help fuel company growth.
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Contractual agreements - enlist the help of a business attorney to draw up well-phrased contracts to ensure satisfactory terms and reduce the risk of fallout with clients and vendors.
And, finally, create a culture of top-notch compliance. If you create a company culture that adheres to the rules and does not look for any shortcuts to success, you can rest easy at night knowing that your company is not exposed to any unnecessary risks.
Cover All Bases: Protect Your Company with Airtight Coverage
As a business grows, the risks start exponentiating. Stay one step ahead of a debilitating claim by choosing the right business insurance for your growing company. For more ideas on the best types of coverage for your small business, contact Barber Insurance Agency for a consultation today!