Business insurance is key to small business sustainability.
But why is sustainability even an issue?
In the following article and video, we break down the major threats to small business sustainability and what you can do to protect your business.
10 Threats To Small Business Sustainability
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 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% of businesses never reopen following a disaster such as a fire or a 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 avoid liability is to shutter your business completely. 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 injuries, personal injury (e.g., 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 negligence or wrongdoing claims and 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 employee's financial loss or pay for a temporary replacement during their 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.
Like their larger counterparts, small businesses have the same responsibility to indemnify workers who are injured or become ill during 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.
6. Managing Electronic Data and Computer Resources
Small businesses often lack a formal IT department or even rudimentary internet security measures, which leaves them vulnerable to unscrupulous cyber criminals searching for an easy target.
With an estimated liability of more than $200 per compromised record—multiplied by hundreds or thousands of customer records—the cost of a single data breach incident can be devastating for a small business.
If your business stores customer records electronically, it is crucial that you have robust security measures in place. In addition to taking preventative measures to reduce Internet-based exposures, specialized technology coverage, such as cyber liability insurance, can help protect your business against damage from cyberattacks, data breaches, and other internet-based exposures.
7. Environmental Exposures
Think of a business with significant environmental exposure. What comes to mind? Most people think of large manufacturing, mining, or petroleum operations, but these are not the only industries that risk environmental liability losses.
It is important to perform a comprehensive risk analysis to determine your own level of exposure. Keep in mind that because most commercial insurance policies contain pollution exclusions, unless you carry environmental insurance, you may be uninsured against significant environmental loss exposures.
8. Employment Practices
From the moment you begin the pre-hiring process until the final goodbyes at the exit interview, you are at risk for a lawsuit. In fact, three out of five employers will be sued by a prospective, current or former employee while they are in business.
Although many lawsuits are groundless, defending against them is costly and time-consuming. Your business should take a hard look at whether it can afford to defend itself against wrongful employment practices accusations.
If not, there is an insurance solution called employment practices liability coverage that can protect your company against wrongful termination, discrimination (e.g., age, sex, race and disability) or sexual harassment lawsuits.
READ NEXT: Employment Practices Liability Insurance
When first starting out, many new business owners simply don’t have the time or expertise to evaluate each clause in everything they’re signing adequately. This oversight, however, can create major problems down the road.
In many cases, small businesses become saddled with large additional risks, accepted via risk transfer from savvy suppliers or customers.
While it’s tempting to shave costs by skimping on legal fees, making sure your business isn’t accepting additional and unnecessary risks can save you a lot of money over the long haul, both in legal costs and in insurance coverages.
10. Managing Your Supply Chain
Do you rely on one or more third-party suppliers to produce certain components used in your products? If you do, a disaster that interrupts your supplier’s regular business operations could have a crippling effect on your production abilities.
Although you should always try to minimize potential liability through contingency planning and other risk management techniques, as supply chains grow across the globe, sometimes there is little you can do about the exposures faced by your suppliers.
In a perfect world, you could simply avoid doing business with companies that present numerous risks or that are unwilling to conform to your standards, but pricing constraints and niche markets limit the number of potential suppliers to choose from.
Supply chain insurance is meant to cover losses you incur as a result of an interruption to your supply chain. Such coverage allows you to work confidently with suppliers who face exposures beyond your control.
Insurance is a key component of creating sustainability and profitability in every small business.
That is why we focus on small businesses, to make sure business owners, like you, have the right insurance program through the right carrier at the right price every single time.
If this is the kind of relationship that you would like with your insurance provider, we would love to talk to you.
- You can call or text us at 518.960.6600,
- Click here to contact us via email.
I look forward to introducing you to a new way of viewing your insurance program.