Today’s post is from our guest, Daniel Scott. You can learn more about Daniel in his author profile below the article.
Starting a business is a complex undertaking. A million things need to be done at once and time is tight. And whilst the temptation to push insurance down the list of priorities is common, it needs to be a consideration from day one.
If you think you can set your business up first, gain some traction and then consider insuring your business, you need to rid yourself of this notion entirely and immediately. Many of the risks that your business faces present themselves the second you begin trading, and need to be addressed ahead of anything else.
This doesn’t mean you have to insure everything. On the contrary – you should be as selective and efficient with your insurance policy as you are with your margins. But you do need to take care of the big stuff straight away, the things that could financially decimate your business to the point that its very existence would come under threat.
Let’s take a cursory look at two of the major insurance types that need to be considered, and figure out when and why they need to be taken care of.
General Liability Insurance
This is the big one. The need for general liability insurance applies to pretty much every business, large or small because it protects against something we’re all vulnerable to; the financial cost of causing bodily injury or property damage to another party.
As this is a legal liability, the costs can be astronomical. general liability insurance can cover you for legal costs (whether a claim is valid or not), plus any compensation claims that are leveled against you. Both can stretch into the millions of dollars, more than enough to financially cripple a small business.
The great myth of general liability is that it’s something that can be taken care of ‘later’, or that it doesn’t matter until the business grows to a certain point, when in fact incidents that lead to lawsuits for damage or injury can occur as soon as you begin trading. You could accidentally damage equipment that belongs to a client whilst you visit their site, or they could trip over a loose cord and injure themselves whilst visiting yours.
Waiting until your business grows to get insurance is a mistake. Share on XThese are dangers that won’t wait until your business reaches a certain growth point to present risk, and being hit with a lawsuit in the early days of trading is just as likely as being hit with one two years in – more so in fact, given the raw nature of the business and the safety issues that still may not have been sorted out.
What’s more, general liability also includes product liability, which is crucial because it means that any product you manufacture or sell is also covered from causing damage or harm. Again, if you’re selling a product then this is something that can happen from day one, so it’s something that you need to protect your business from as soon as trading commences.
As a final proof point, keep in mind that a lot of contracts require general liability insurance to be in place before they can be put in place. This could be a simple customer contract, real estate lease, or a compliance regulation for a professional body.
Professional Liability (Or ‘Errors & Omissions’) Insurance
Professional liability insurance is crucial for businesses that provide professional services such as giving advice, designing solutions, or providing education and training, and protects the business owner against the costs of claims for damage due to negligence, mistake or misrepresentation.
Regardless of how valid the claim is, this insurance will cover legal costs and any expenses related to a judgment or settlement. Given that claims here often involve considerable amounts of money, there are not many small or medium-sized businesses that could financially cope with paying a settlement. We live in a particularly litigious society and the danger to professionals is clear; individuals are not afraid to seek legal recourse if they believe you’ve failed to perform.
Like general liability, professional liability is required from the first day a service is being offered. Again, there is a prevailing myth that this is something that can be delayed until the business gains traction and becomes successful, but there is an even greater chance that something will go wrong in the early days when the experience level is lower and the processes are still being defined.
Insurance is most important when you're just starting out but is important at all stages of business. Share on XA closer look at some of the major allegations that professional liability can insure against reads like a shopping list of costly lawsuits:
- Error, omission, or negligence in providing a service
- Failure to provide a service
- Violation of good faith
- Overpromising
- Improper documentation
- Malpractice
- Mismanagement
- Misrepresentation of facts
- Nondisclosure
- Violations of state and federal law
Unfortunately, it only takes just one professional misjudgment to place your business at risk. And if that risk isn’t transferred to a reputable provider via a professional liability insurance policy your business is a step away from disaster.
But Wait, There’s More
General liability is a non-negotiable must-have, the second your business goes live, as is professional liability insurance if a service or advice is involved. But, of course, there are a host of other insurance considerations that will depend on the nature of the business and the risks that it faces. This could mean addressing insurance for everything from building and contents and equipment, to business interruption and employee theft.
And whilst other insurances could save your business from a hefty blow, nothing will provide more protection than insurance for your legal liability.
You don’t need to think about insurance every day, but thinking about it on day one and at subsequent regular intervals will mean that your business’s worst day won’t necessarily be its last day.
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