How to Protect Your Startup Business

By Catherine Powell

Image courtesy Pixabay

If you’re looking to start a new business, you want to make sure it has a fighting chance to thrive for years to come.  Statistics show that two thirds of startups don’t survive the first three years of operation.  While the reasons for business failure are many, some of the most prevalent are undercapitalization, overestimation of sales volume, and failure to adequately protect the business from the risks inherent to the marketplace.  While I can’t help you raise or make money with your latest venture, one of the things I can show you are ten ways to protect it from the slings and arrows of the free market.

1. Got employees?  Then you’ll probably need to carry workers comp.  While workers comp rules vary from state to state, in Florida any employer with four or more employees is required to carry workers comp, regardless of whether the employees are employed full or part time.  One exception to the rule is construction companies that are required to carry workers comp as long as they have one or more employees.  Another exception are any officers of a firm who choose to opt out.  What worker’s comp is designed to do is compensate employees should they be injured, maimed or killed on the job.  Benefits to employers include the cost and time involved in defending themselves in court, since employees who are covered by workers comp waive their right to sue their employers unless their injury was caused intentionally. 
2. Can your employees still sue you even once you have workers comp?  Yes, they can. Any time you have to deal with employees, you may also have to deal with employee grievances.  Should you or anyone in your employ ever be accused of sexual harassment, racial discrimination, creating a hostile work environment, or using unfair employment practices, you could be called on to defend your firm in court.  Even if the accusations prove groundless, the cost to defend yourself could set your business back financially. To prevent this from happening, you can look into acquiring Employment Practices Liability Insurance.  
3. What happens if an employee steals from your business?  It’s possible a trusted employee could siphon funds from your company bank account or one could wind up harming a client financially.  Fidelity bonds are designed to reimburse your business from any employee who commits theft, fraud or forgery related to your business.  This means if an employee embezzles funds, forges company checks, or perpetrates an act of fraud against one of your clients, a fidelity bond would compensate you for the financial damage done.     
4. Errors and Omissions – While not always the result of your employees, what E&O insurance does is protect your business from lawsuits that can arise from oversights & mistakes, professional negligence and failure to deliver products or services to customers.  While most business owners and managers like to think they have a good bead on things, if your business were to experience a supply side issue that delayed or derailed the material you need to produce your products, your firm could be held liable.  If a sales rep promises results to your clients that the company is unable to deliver, your firm could be held liable.  If the products or services your company produces are deemed unsatisfactory, your firm could be held liable.  An E&O policy can provide your business with $1 million of protection to deal with any of these claims.
5. Does your business retain credit card info or social security numbers of clients? – If it does and this information is stolen by hackers, your business is likely to be sued.  The same is true if your business relies on in-house computers to deliver services to your clients and your server gets hit with ransomware.  If your firm relies on office automation that is critical to delivering goods and services to clients, you should consider acquiring cyber liability insurance.  This way if your business is hacked or shut down by a hacker, your company won’t have to bear the financial hardship of finding and fixing security flaws, notifying affected clients, and defending your business in court should your clients seek financial compensation for the damage the breach caused them.
6. How can you protect your firm against fire, theft or acts of God? – Even if you rent space, many businesses still need commercial property insurance. That’s because most businesses have a lot of money invested in computers, equipment, inventory, and furnishings that they can ill afford to replace if they are stolen or destroyed. 
7. Do you use your private vehicle for business purposes? – Then you probably should consider talking to your insurance agent about commercial auto insurance.  This kind of policy isn’t only for company cars and delivery trucks.  If you use your vehicle to deliver goods to your customers or let your employees drive your car, you could come to find out that you’ve opened yourself up to a world of liability that your personal auto policy doesn’t cover.  That’s right, if one of your employees got into an accident while driving your personal vehicle for business purposes, you could wind up being held personally liable for damages.  If you use your personal vehicle to make deliveries and it is stolen or broken into, your personal auto policy will not pay to replace lost or stolen goods. 
8. Is one of your employees crucial to the success of your business? – If this is the case, have you ever considered what would happen were they to suddenly die?   If you lose sleep at night worrying about losing a key employee, there is an insurance product called Key Person Insurance that works like a life insurance. Like traditional life insurance, this policy pays out a fixed sum from $100,000 to $1,000,000 in the event of death.  Unlike traditional life insurance, the payout isn’t to the family of the employee, but to the employer.  This way you can better weather the loss while seeking to replace an employee who’s deemed irreplaceable to your business.
9. Do you manufacture or distribute products? – Then you could be held liable should they harm or kill anyone.  Product Liability Insurance protects a business from a number of unforeseen circumstances that could result in legal action being taken against it.  Any design or production flaw is a lawsuit looking for a place to happen.  So too are packaging and warning labels.  Even if you only distribute products, you too can be sued if any of them is found to be defective in any way. 
10. What happens if your business is forced to shut down unexpectedly? Anything from storm or fire damage to a pathogen like COVID-19 can stop any business in its tracks for weeks or months.  Should this happen, how would your business pay its bills, not to mention your employees until the crisis has passed?  This is what Business Interruption Insurance is designed to deal with.

Does it have to take a half dozen or more policies to cover a small business effectively?  Absolutely not.  In fact, there is an insurance product designed to cover small businesses by providing several types of insurance under one policy.  It’s called a Business Owner’s Policy.  A BOP combines business liability and property damage coverage in one convenient package. While there are some limitations and restrictions with a BOP, provided your business has less than 100 employees and grosses less than $5 million per year, this product can satisfy many of your startups insurance needs while simplifying the process of covering your assets. 

Catherine Powell is the owner of A Plus All Florida, Insurance in Orange Park, Florida.  To find out more about saving money on all your insurance needs, check out her website at http://aplusallfloridainsuranceinc.com/