Optimism is the fuel that drives the entrepreneurial spirit, so it isn’t surprising that most small business owners consider themselves optimists. Too much optimism, however, can get a small business owner into trouble. A business plan built solely on the “best case scenario” is like a house of cards—one gust of wind (or fire or wrongful termination lawsuit) and the entire business can come crashing down. That’s why smart business owners temper their innate optimism with a healthy dose of reality. In other words, they learn to manage risk.
The first step in implementing a comprehensive risk management plan is identifying potential risks. To help you get started, we have provided a list of the top 10 threats facing small business owners. As you read through the list, consider the unique risks facing your business and ask yourself whether those risks are being managed effectively.
1. Protecting your Property
Property holdings are often a small business owner’s largest asset. Therefore, for the long-term security of your small business, it is vital that you evaluate potential threats to your property and develop a plan to manage those threats. Begin by taking a complete inventory of all your assets to determine how a loss might affect your business and how much coverage you need. Property coverage can come in many forms to suit your specific needs, but a typical policy will provide the replacement cost value for your building and the actual cash value for your business property.
You have a lot weighing on your budget already, but don’t make the mistake of planning for the “best case scenario” when it comes to your property coverage. Leaving your small business underinsured is a risk too great to take.
2. Business Interruption
The U.S. Department of Labor estimates that more than 40 percent of businesses never reopen following a disaster such as a fire or flood. Is your business prepared to weather the storm if disaster strikes? If a fire causes your facility to be temporarily unusable, what would you do? Ideally, you would move to a temporary location while your permanent place of business is being repaired, but traditional Property Insurance does not cover this move or the loss of income while the permanent business location is being repaired. Ill-prepared businesses are often forced to completely shut down operations during repair, which can do irreparable damage to their brand and leave employees without work for extended periods of time. To mitigate this risk, consider adding Business Interruption coverage to your Property Insurance policy. This invaluable, though often overlooked, coverage safeguards your business by covering operating expenses and lost income while the permanent business location is being repaired. This will allow you to maintain payroll and, if needed, reallocate current employees to help with the cleanup effort.
3. Liability Losses
No matter how well you plan, running a small business can be fraught with unexpected surprises—the only way to completely avoid liability is to shutter your business. Smart business owners do the next best thing: protect their assets by carrying adequate Commercial General Liability (CGL) Insurance coverage. CGL policies provide coverage for claims of bodily injury or other physical injury, personal injury (libel or slander), advertising injury and property damage as a result of your products, premises or operations. A CGL policy with adequate coverage limits enables you to continue normal operations while dealing with real or fraudulent claims of negligence or wrongdoing, and also provides coverage for the cost of defending and settling claims.
4. Key Person Losses
Many small businesses are built around the talents and expertise of a few individuals. If an employee crucial to the functioning of your business departs unexpectedly due to death or injury, would day-to-day operations continue as usual or would disorder and uncertainty ensue? Would you be able to maintain your current level of performance and current revenue stream? How would you cover for the financial loss of the employee or pay for a temporary replacement during his or her recovery? Key Person Insurance can help you answer these questions with confidence. This coverage is designed to provide financial stability in a time of stress and uncertainty, allowing you to keep your business moving forward without missing a beat.
5. Injuries to Employees
Small business owners, especially those with less than 10 employees, often struggle with understanding their employee health and safety obligations. Just like their larger counterparts, small businesses have the same responsibility to indemnify workers who are injured or become ill during the course of their employment. Many businesses do not realize the full effect workplace accidents have on their organization. Beyond initial treatment costs and lost production time, on-the-job injuries have an impact on insurance premiums, which can increase your costs for years to come. Thankfully, by managing exposures and promoting safety, it is possible to control workers’ compensation premiums. Having the proper pre- and post-accident procedures in place can drastically reduce the severity of a workers’ compensation claim, and implementing a comprehensive safety program can reduce the accident rate. Together, these two steps can produce tremendous long-term savings.
Next week’s post will cover the remaining five threats you need to be aware of and plan for in your small business.
Insurance is a key component of any comprehensive risk management plan, but successful risk management also involves prevention, training and contingency planning. Contact Roper Insurance & Financial Services at (303) 721-1145 or by clicking the Contact Us button above to learn more about the tools and resources we can offer to help you manage risks, control workers’ compensation costs, advance safety and boost employee morale.