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 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.
Maybe you started your business with a specific entity in mind — for example, as a sole proprietorship. But as you expand, this structure may no longer fit your needs. Ask yourself regularly if your current entity setup is still relevant, and whether you need to evolve. Thinking through this question will help minimize future risk.
Many 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 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 entity is the best fit.
Hold your personal assets strategically to keep them safe. Most 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.
Your personal credit may intersect with your business credit, depending on the selected 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.
A business owners policy will combine three essential insurance coverages for your small business:
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.
Just a few inches of water can cause tens of thousands of dollars in damage, according to the Federal Emergency Management Agency.
If something keeps you from operating your business, such as a flood, earthquake, hurricane or power failure, it’s critical to have business interruption insurance to assist with expenses. 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.
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. If you need assistance understanding the risks, connect with us for sound advice.
At General Insurance Services, we are a team of insurance professionals with an array of experience, backgrounds, and interests. We’re advisors with a mission to secure the future of the communities we serve. Share our knowledge through this blog allows us to get one step closer to achieving our mission.