In the rough and tumble world of start-ups and entrepreneurship, cost-cutting is normally pretty high up on the list of priorities. And, if you were to take out your notebook and look at the priority list, you'd find "reducing risk" on the same list.
How do entrepreneurs balance the costs of carrying insurance for the unexpected, with the need to lower operating costs in the first few years of business? Nationwide, an insurance company that earned $40 billion in revenue last year, issued a Press Release that points to the fact that "...66 percent [of small business in American] don't even have business interruption insurance."
1. Insurance Provides Resiliency
It's pretty clear that the majority of start-ups and SME's are avoiding the cost of insurance premiums. But that's throwing their risk-factor off the charts. If something happens, insurance is designed to help soften the blow. Start-ups are exceedingly vulnerable, which is why 25% fail to reopen after a major disaster.
If something happens to the community where you operate and you lose power, do you even have access to a generator? How will you keep the business running? Can you afford the losses incurred during downtime? Having a solid range of insurance policies can be the difference between total loss and the opportunity to rebuild.
2. Employees Are Walking, Talking Risk Factors
If an employee, sub-contractor or customer hurts themselves on your premises, are you ready to cover the cost of legally defending yourself and your organization from the lawsuit? What happens when an employee needs medical care as a result of a long-term workplace injury (i.e. carpal tunnel, mesothelioma, etc.)?
When you are running a team of several individuals, you are going to come across several issues, people are going to get sick or come across some unavoidable accidents that they would want to make claims for.
According to Litster Frost, "An insurance company is legally obligated to compensate you for reasonable medical treatment with the best medical care available, up to the limits of the policy." For small businesses, this can mean lifesaving treatment for your employees is now covered as part of their benefits package, allowing your recruiting efforts to be more competitive.
For your company, having the proper insurance helps limit the impact of an emergency or accident.
3. Insurance Premiums and Associated Costs Could Be Tax Deductible
Beyond covering the unexpected, carrying insurance can provide tax benefits to your organization. If a pipe leaks and destroys your company's server, how would you cover it? If you have insurance, the (potentially) tax-deductible premiums you've paid for your coverage could cover all or part of the loss. Without insurance, you're stuck footing the bill for the repairs to the office, the server and the loss of business due to the incident.
Granted, it's possible that losses to your business could be tax-deductible, but the guidelines offered by the IRS provide a clear savings opportunity that should encourage every business to carry insurance.
4. Peace of Mind
I remember the first hurricane that hit our community. I had just rented an office and moved in all of our supplies. In fact, the paint had barely dried on the sign when the outer bands started to reach the coast. I remember talking to the landlord about the potential for damage and his first question: "What's your insurance coverage like?"
I thought it was a funny question, considering that I didn't own the building where we were leasing space. But, he pointed out the potential for my furniture and electronics to become water damaged; something his policy would not cover.
Thankfully, I had worked with an insurance agent in the previous month to reassess our needs and my policy covered a variety of items, including damage caused by an "act of God".
The peace of mind that comes from knowing that our business was covered allowed me to focus on the most important thing, my customers. If you're an aspiring entrepreneur, or someone that's already fighting the good fight to build a business, insurance has to be part of your cash-flow equation. Operating without it just leaves too much to chance.