Read Start Your Own Business Online
Authors: Inc The Staff of Entrepreneur Media
Start Your Own Business (53 page)
Debit cards are so pervasive these days that pretty much every bank or standalone merchant account supplier offers debit card processing—including online providers—and, in fact, you’re likely to be offered the option when you apply for a merchant account. Once your merchant account is approved, all you need to do is buy a PIN pad, which runs as little as $59, connect it to your terminal, and you will be in business. Hypercom and VeriFone are well-known, affordably priced brands.
chapter 22
COVER YOUR ASSETS
Getting Business Insurance
O
ne of the most common mistakes startup business owners make is failing to buy adequate insurance for their businesses. It’s an easy error to make: Money is tight, and with so many things on your mind, protecting yourself against the possibility of some faraway disaster just doesn’t seem that important. “Oh, I will get insurance,” you promise yourself, “one of these days.” Soon, “one of these days” comes and goes, and you’re still uninsured. Only now, your business has gotten much bigger ... you’ve put a lot more into it ... and you have a lot more to lose. Everything, to be exact.
ne of the most common mistakes startup business owners make is failing to buy adequate insurance for their businesses. It’s an easy error to make: Money is tight, and with so many things on your mind, protecting yourself against the possibility of some faraway disaster just doesn’t seem that important. “Oh, I will get insurance,” you promise yourself, “one of these days.” Soon, “one of these days” comes and goes, and you’re still uninsured. Only now, your business has gotten much bigger ... you’ve put a lot more into it ... and you have a lot more to lose. Everything, to be exact.
It doesn’t take much. A fire, a burglary, the illness of a key employee—any one of these could destroy everything you’ve worked so hard to build. When you think of all the time, effort and money you’re investing in your business, doesn’t it make sense to invest a little extra to protect it?
e-FYIInternet businesses have unique needs—and now they have their own unique insurance. Companies like The Hartford offer insurance to protect against damage from web-based activities, including viruses and hacking, privacy violations, copyright infringement and more. Cyber policies are usually added to a business’s general liability coverage. Not all businesses qualify for such coverage, though, so talk to your insurance broker.
Following is a closer look at the types of business insurance available and what most entrepreneurs need, plus tips for keeping costs under control. (Health insurance is covered in Chapter 24.)
Basic Insurance NeedsThe basic business insurance package consists of four fundamental coverages—workers’ compensation, general liability, auto and property/casualty—plus an added layer of protection over those, often called an umbrella policy. In addition to these basic needs, you should also consider purchasing business interruption coverage and life and disability insurance.
Workers’ CompensationWorkers’ compensation, which covers medical and rehabilitation costs and lost wages for employees injured on the job, is required by law in all 50 states.
Workers’ comp insurance consists of two components, with a third optional element. The first part covers medical bills and lost wages for the injured employee; the second encompasses the employer’s liability, which covers the business owner if the spouse or children of a worker who’s permanently disabled or killed decide to sue. The third and optional element of workers’ compensation insurance is employment practices liability, which insures against lawsuits arising from claims of sexual harassment, discrimination and the like.
“Employment practices liability protects the unknowing corporation from the acts of the individual,” according to a spokesperson at the Independent Insurance Agents of America (IIAA), an industry association. “Whether you need it depends on the size of your business and how much control you have over the daily work of employees.” This is something you may need to worry about as your company grows.
According to the IIAA, it is often hard for small companies to get workers’ compensation insurance at reasonable rates. Consequently, some states have a risk-sharing pool for firms that can’t buy from the private market. Typically state-run and similar to assigned risk pools for car insurance, these pools generally don’t provide the types of discounts offered in the voluntary market and thus are an “insurance of last resort.”
SAVEAsk your insurance agent about risk-reduction tactics that you can use to help save money. Altering your business practices—for instance, installing better locks or brighter lights to prevent crime—can cut your premiums (and your risk). You may even want to change your business operations to get rid of a high-risk activity.
Because insurance agents aren’t always up-to-date on the latest requirements and laws regarding workers’ comp, you should check with your state, as well as your agent, to find out exactly what coverage you need. Start at your state’s department of insurance or insurance commissioner’s office.
Generally, rates for workers’ comp insurance are set by the state, and you purchase insurance from a private insurer. The minimum amount you need is also governed by state law. When you buy workers’ comp, be sure to choose a company licensed to write insurance in your state and approved by the insurance department or commissioner.
If you are purchasing insurance for the first time, the rate will be based on your payroll and the average cost of insurance in your industry. You’ll pay that rate for a number of years, after which an experience rating will kick in, allowing you to renegotiate premiums.
Depending on the state you are located in, the business owner will be either automatically included or excluded from coverage; if you want something different, you’ll need to make special arrangements. While excluding yourself can save you several hundred dollars, this can be penny-wise and pound-foolish. Review your policy before choosing this option, because in most states, if you opt out, no health benefits will be paid for any job-related injury or illness by your health insurance provider.
“Be smart, but never
show it.”—LOUIS MAYER,
CO-FOUNDER OF
METRO-GOLDWYN MAYER
A better way to reduce premiums is by maintaining a good safety record. This could include following all the Occupational Health and Safety Administration guidelines related to your business, creating an employee safety manual and instituting a safety training program.
Another way to cut costs is to ensure that all jobs in your company are properly classified. Insurance agencies give jobs different classification ratings depending on the degree of risk of injury.
General LiabilityComprehensive general liability coverage insures a business against accidents and injury that might happen on its premises as well as exposures related to its products.
For example, suppose a visiting salesperson slips on a banana peel while taking a tour of your office and breaks her ankle. General liability covers her claim against you. Or let’s say your company is a windowsash manufacturer, with hundreds of thousands of its window sashes installed in people’s homes and businesses. If something goes wrong with them, general liability covers any claims related to the damage that results.
The catch is that the damage cannot be due to poor workmanship. This points to one difficulty with general liability insurance: It tends to have a lot of exclusions. Make sure you understand exactly what your policy covers ... and what it doesn’t.
You may want to purchase additional liability policies to cover specific concerns. For example, many consultants purchase “errors and omissions liability,” which protects them in case they are sued for damages resulting from a mistake in their work. A computer consultant who accidentally deletes a firm’s customer list could be protected by this insurance, for example.
THE NAME’S BONDS
ometimes confused with insurance, bonding is a guarantee of performance required for any business, either by law or by consumer demand. The most common businesses that bond employees are general contractors, temporary personnel agencies, janitorial companies and companies with government contracts. Bonding helps ensure that the job is performed and that the customer is protected against losses from theft or damage done by your employees.Although you still have to pay on claims if your employees are bonded, bonding has the side benefit of making your business more desirable to customers. They know that if they suffer a loss as the result of your work, they can recover the damages from the bonding company. The difference between a bond and insurance is that a bonding company ensures your payment by requiring security or collateral in case a claim is made against you.
Companies with a board of directors may want to consider “directors’ and officers’ liability” (D&O), which protects top executives against personal financial responsibility due to actions taken by the company.
How much liability coverage do you need? Experts say $2 million to $3 million of liability insurance should be plenty. The good news is that liability insurance isn’t priced on a dollar-for-dollar basis, so twice the coverage won’t be twice the price.
The price you’ll have to pay for comprehensive general liability insurance depends on the size of your business (measured either by square footage or by payroll) and the specific risks involved.
Auto InsuranceIf your business provides employees with company cars, or if you have a delivery van, you need to think about auto insurance. The good news here is that auto insurance offers more of an opportunity to save money than most other types of business insurance. The primary strategy is to increase your deductible; then your premiums will decrease accordingly. Make sure, however, that you can afford to pay the deductibles should an accident happen. For additional savings, remove the collision and comprehensive coverage from older vehicles in your fleet.
AHA!Keep detailed records of the value of your office or store’s contents off-premises. Include photos of equipment plus copies of sales receipts, operating manuals and anything else that proves what you purchased and how much was paid. That way, in case of a fire, flood or other disaster, you can prove what was lost. It’s also important to be able to prove your monthly income so you are properly reimbursed if you have to close down temporarily.
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