Startups are incredibly exciting. They grow quickly, are ever-changing, and have to be incredibly flexible to mature into long-term profitability. Naturally, with all of the attention on building a brand around a new product, recruiting top-tier talent, and putting out a few fires along the way, some of the finer details like insurance can get lost in the shuffle. Below you’ll find advice for entrepreneurs who are just starting this journey and what pitfalls to avoid.
Use a Knowledgeable Insurance Agent
Insurance policies are complicated legal and financial contracts that can make or break a business. A good agent knows how to navigate them and has the systems to do it quickly while you work on what you know — growing your business.
Common Mistake: Mistaking insurance for a consumer product that you buy off a shelf for the cheapest price possible.
Purchase the Right Coverage
General Liability coverage pays the legal expense and damages when your product or operation causes harm.*
Common Mistake: buying limits less than $1,000,000. Lower limits won’t save you much money and you’ll just be calling your agent to increase it later anyway.
Property Coverage pays to repair or replace your property when it is damaged or stolen.*
Common Mistake: Under-valuing your property to save insurance premium. Most companies will only pay a portion of a claim if you only cover a portion of what you need.
*Note: These Coverages are usually packaged in a Business Owners(BOP) Policy or a Commercial Package policy. Cost can range from $500 to $3,500 per year depending on your location and type of business.
Workers Compensation is state-mandated insurance that pays the medical expenses and income when an employee gets injured. Premium is based on total annual payroll, so budget for it as part of your labor cost.
Common Mistake: Failing to buy a workers compensation policy for your first hire. This mistake will cost thousands of dollars in overdue premium and labor fines from your state.
I’m getting two teeth pulled tomorrow. I wish my toothbrush and I had been better friends when I was ten years old. Many start-up businesses are like that innocent boy, unknowingly causing future pain just because he didn’t know any better.
It would be great to save a few bucks and pull my own teeth, but some things are worth working with a professional. Done wrong, it could cost you your retirement, your business or, at very least, a lot of extra pain and frustration as you start your new business. Done right, you’ll save money, enjoy better business opportunities and prevent unforeseen expenses. Don’t be like me… Do the simple but important things now. Your future self will thank you for it.
Brett Thompson, CIC, CRM