Small business insurance: Understand your risks

You’ve made the decision to start your own business. You've gained the support of financial backers and you feel ready to take the world by storm. Now is the time to ask yourself: Have I thought about the threats to my new business? You can protect your business against potential risks with a little pre-planning. Many of these risks can be mitigated with small business insurance. Without it, your business is vulnerable to situations, such as a lawsuit or larceny. Consider the following distressing scenarios:

• An unhappy customer claims you gave them poor advice and decides to sue you. Even if you aren’t at fault, you’re likely to find yourself spending a lot of time dealing with the case and racking up expensive attorneys’ bills that you haven't budgeted for. By buying Errors and Omissions insurance (also known as professional liability insurance), you can cover your legal costs in the event of a lawsuit involving a covered claim. An insurance company will even appoint a lawyer to defend you in such a case.
• One of your employees is injured at work. The injuries aren't severe, but the employee needs hospital treatment and rehabilitation, all of which you must pay for. The costs can quickly spiral, but you can get coverage for these expenses with workers’ compensation insurance.
• A potential client is injured while visiting your offices and you are held responsible for their injuries.  Do you have general liability insurance to cover the damages and medical and legal fees?
• There’s a fire or tornado that destroys your office. The damage not only wipes out your office but your income for the year. If you had a business owners’ policy, you’d be reimbursed to replace your lost equipment. Further, if your business owners’ insurance has business interruption coverage, you could be reimbursed for that lost income up to your policy’s coverage limits.

Some of these incidents may ring a bell to you. You’re a motivated entrepreneur with a growing business, but these events could derail your plans for success. With money in short supply, your investors – whether family members, a bank or a venture capital firm – will want to know that you have every angle covered to protect their investment. Consider all these possibilities before you’re preoccupied with the day-to-day operations of a new business.