Anticipation is a small business owner’s greatest tool when it comes to business protection.
Preparing for particular scenarios by properly protecting a business, particularly when it comes to insurance, can mean the difference between an unfortunate, yet fixable, situation or a financially crippling event.
Small businesses cannot afford to operate with an “it could never happen to me” mentality. Imagine coming to work one morning to find your business or equipment destroyed by fire. This could have serious, if not catastrophic, consequences.
Many people don’t realise, for example, that the ongoing costs due to fire damage can eventually be four times the initial damage costs!
Amongst other things, this can be due to the loss of earning time and ability, damage to your reputation, cancelled orders and customers moving elsewhere.
It is important to take precautions to protect yourself. This means preparing a risk management strategy as well as ensuring you have adequate insurance cover.
Insurance planning
Risk management means assessing your business for potential problems and includes:
- Identifying potential problems
- Determining how likely they are to occur
- Putting in place appropriate security procedures and work place practices
- Working out strategies to minimise their impact.
Where the probability of the risk is high, it is essential to take precautionary measures. These include instituting security procedures as well as taking out appropriate insurance.
Insurance Planning
Worker’s Compensation insurance and Motor Vehicle Third Party insurance is compulsory for all businesses. In addition, you should insure against the following four types of risk:
Loss or damage to your property, including stock, equipment, fixtures and fittings, motor vehicles and buildings. You may need to take several policies to cover all your risks.
Loss of profit due to an interruption to your business as the result of an insured event.
Personal injury and damage to the general public, or their property, caused by your negligence, or by a defective product you produce or supply.
Loss to the business caused by the death or disability of key personnel or employees.
When deciding on what level of insurance to take out keep in mind:
Losses that occur frequently can also threaten your livelihood. Whilst these are relatively small claims, the cost over a year may be more than you can bear.
Some losses cannot be insured against. These losses will need to be absorbed into the running costs of the business or added in to the cost of goods and services. A common example is shoplifting.
Available insurance coverage
The following list is a guide to the different types of insurance available.
Motor Vehicle Third Party Property Damage only protects the owner of the vehicle for damages to vehicles owned by others.
Comprehensive insurance covers damage to your vehicle and damage to any third party and usually covers incidental costs. If using your vehicle for business, make sure it is covered for business use.
Fire insurance covers loss or damage to premises caused by fire, lightning and other perils. If insurance is required for other events not automatically included (e.g., flood), then higher premiums may have to be paid.
Consequential loss is the insurance of profits against specified loss-producing events such as fire.
Burglary insurance covers damage from burglars breaking into the premises and loss of property (excluding money) as a result. It does not cover theft from employees or shoplifting. Be sure to choose a policy that increases coverage during high stock periods.
Public liability covers your legal liability for compensation to any member of the public, who is not an employee or a family member, who suffers injury, damage to property or death due to your business operations when at your premises.
Product liability provides legal liability against claims arising from injury or damage caused by your goods – whether due to the sale of the goods, or the result of a repair or service.
Professional indemnity covers you against claims that you or your business was in some way negligent, through some act, advice, error or omission which breaches the professional duty of care owed to your customers.
Personal accident and sickness is for self-employed people, who are not covered by Worker’s Compensation insurance (often called Income Protection insurance). Too many people overlook the importance of this type of insurance.
Key person insurance provides protection against loss of income if you, or the nominated key person, suffers injury, disability or death.
Glass insurance covers windows, display case breakages and so on, and can include damage to property as a result of such breakage.
Engineering insurance covers machinery breakdown and spoilage of goods.
Data loss insurance. If you rely on computers for business operations, technical problems or malicious acts could result in the loss of vital data or business information. Most insurance companies have packaged policies designed to cover most small business needs and include most of the insurance policies mentioned.
