If you own or run a small business, you’ll know there’s a lot of things that can (and will) go wrong at some time or another. Just as you would hold different forms of insurance for your personal life, health and assets, your business can also leverage multiple insurance products to cover essential risks. Let’s take a look at why small businesses in particular need to contemplate their insurance coverage, as well as a few of the different types available.
Why do small businesses need insurance?
No matter your industry, there will be an element of risk present in what you do or own. If you own assets, carry debt or provide goods or a service – you’re at risk of damages in some shape or form. With every customer transaction you complete, there is a small chance that something goes wrong and that they return for compensation or worse, damage your reputation. Perhaps you get injured and can no longer run the business. Every now and then, commercial equipment and machinery will break down. Insurance is a tool we can use to provide a fail-safe when things go wrong.
“Some forms of insurance are a legal requirement for certain types of businesses in Australia.”
It’s also worth keeping in mind that while most are optional, some forms of insurance are a legal requirement for certain types of businesses in Australia. For example, workers’ compensation insurance is necessary for every business that employs staff. Check your State’s specific requirements or seek independent legal advice to make sure you’re covered at the minimum level and meet the applicable legislation. Once the basics are covered, it’s time to research additional policies that may benefit your risk profile.
Public liability insurance
You’ve probably already heard of public liability insurance as it’s essential for almost every type of business. Essentially, it covers your business and your employees for any liabilities resulting from your products or services causing harm to a customer, their property or more broadly any member of the public. Without insurance, a severe issue such as an injury to a customer on your business’s premises could derail your entire small business in legal and compensation costs, sometimes racking up to hundreds of thousands of dollars. Public liability insurance can not undo the result of an unfortunate accident, but it can cover all the costs involved with settling the issue. If there was only one form of insurance your business considers, it should be public liability insurance!
Trade credit insurance
Many small businesses sell on credit to other companies and therefore rely on timely cash flow from their customers. Without it, they may struggle to pay their staff, suppliers or any other bills that come their way on time. Trade credit insurance covers your business for customers that do not pay, for whatever reason. Perhaps your customer is dodgy and disappears before making their dues, or maybe they are struggling themselves and can’t afford to follow through. Whatever the reason, trade credit insurance gives small businesses peace of mind that their projected cash flow is protected no matter what.
Professional indemnity insurance
If your business revolves around providing your customers with advice or another type of service, you must cover yourself from any claims of liability resulting from your actions. Whether that’s a mistake, omission or a breach of duty, the financial impact on your customer (and your liability) may be significant. Public liability insurance does not cover incidents of a purely economic nature or a breach of professional duty, so this is where professional indemnity insurance applies. Typical users include consultants, engineers, architects and accountants and many industries require it as a legal condition of entry.
Management liability insurance
Small business owners often place themselves (including their personal assets) at risk. Management liability insurance protects your business, yourself and your management team against the dangers of mismanaging the business. While none of us wants to make a mistake, they happen, and it pays to be covered.
“It pays to be protected from the inherent risks of having management responsibility.”
This type of insurance covers things like legislative breaches, fines, defamation, OH&S issues and unfair dismissal cases. Importantly, it’s also a line of defence against theft and fraud by employees! With your personal assets often at stake, it pays to be protected from the inherent risks of having management responsibility and employees that may be unpredictable.
Insurance is a necessary part of every small business, but it can also be challenging to figure out. We believe small business finance should be straightforward and beneficial for your business. Capital Plus Finance is an experienced business finance broker that has your best interests at heart. The team at Capital Plus Finance will do everything we can to help you secure a suitable finance solution for your small business. Please give us a call anytime to find out more or to have an obligation-free chat about your business’s funding situation.