Starting a Business

Do I Need Business Insurance?

By Heather McBroom |  Founder of Precision Services

"You work incredibly hard to build a company, why put all that work at risk?"

Heather McBroom | Founder of Precision Services Tweet

Even though most types of insurance for your business are not required by law, it is CRUCIAL for small businesses to carry proper insurance, regardless of what kind of business you own.  The 3 main types of business insurance are General Liability, Professional Liability, and Product Liability.  The way your company is structured, LLC, Sole Proprietor, etc, plays a big part in how important it is for you to carry business insurance.  

Insurance protects your business from disasters or a potential mishap where the financial consequences could force you to close your doors.  This could include an unexpected loss due to fire, wind damage, vandalism, and hail – just to name a few.  It also could cover the business income loss while your company must remain closed during a covered claim. 

We also live in a litigious society.  In the event your company gets sued, your insurance policy covers defense costs that could often exceed thousands of dollars, even for bogus claims, before the Judge makes a decision on your case. 

Need more reasons to consider carrying business insurance?  How about peace of mind?  Rather than worrying how you are going to handle situations that may arise, you are able to concentrate on what truly matters – running your business.  Second, business insurance also makes you look credible.  Carrying business insurance shows your prospective clients and customers that you are a safe bet and have the proper protection in place if something goes wrong.  Third, it also protects your business assets.  You work incredibly hard to build a company, why put all that work at risk? 

You also may have contracts may require it.  When it comes to doing business with other companies or leasing a space for your business, it is often required that you secure the proper insurance coverages to transfer any risk for claims that arise from your negligence. 

Just as important is making sure you are carrying the CORRECT type of insurance coverage needed for your company’s individual risks.  There are multiple lines of insurance that may be needed such as General Liability, Professional Liability, Cyber Liability, Inland Marine coverage, Workers Compensation, and Commercial Auto Liability to name a few.  In addition, policies these days are limited to business description so making sure your policy has the CORRECT classification listed on the policy to cover ALL types of work your business in doing is vital.  Navigating through your policy’s EXCLUSIONS and ENDORSEMENTS to see what is specifically NOT COVERED on your policy is important also. 

How do you choose the proper insurance company and agent to insure your business?  Start by dealing with an independent agent who has access to several different insurance carriers.  Make sure your agent specializes in Commercial Insurance to ensure they know how to properly assess your company’s risk and can provide the proper insurance solutions that you need.  Commercial insurance can be complicated, so someone who specializes in this type of insurance is crucial.

Keep in mind as your business grows, your coverage needs may change.  That is why it is vital to have an insurance agent who maintains constant communication with you, comes to your location to assess your operations and risks appropriately, and explains your coverages to you in terms you understand.  We offer free policy review and no obligation quotes with over 30 of today’s top-rated insurance carriers. 

The Value of Acquiring and Retaining a Business Consultant

"The reality and value of a GOOD business consultant is that they don’t get caught up in the “Forest for the Trees” mindset."

Ron O'Herron - Pikes Peak SBDC Consultant Tweet

A business professor once stated to his class that the definition of a consultant was “a person who rides down from the top of the hill after the battle is over and shoots all the wounded.”

Another definition that has circulated in the business community is, “A person who borrows your watch to tell you what time it is and then charges you for it.”

Although opinions and mindsets will vary, the truth and fact of the matter is that a good business consultant can and will add significant value to the overall operation and growth of a business!

A strange but true story and example of a value-added Business Consultant relates to a serious problem that existed at a nuclear power plant. Their trouble was detected in one of the reactor transmission lines, which was becoming very costly and creating a possible safety issue.  A consultant was called in and after studying the problem for several days and meeting with numerous operations engineers, he provided a solution. On a diagram of the reactor and transmission lines in question, he drew a symbol for a strategically located special type of monitoring/relief valve.  The device was obtained and installed as suggested by the consultant. Immediately the problem went away, cost savings were realized, and the safety threat was eliminated. Upon receiving the consultant’s $75,000 invoice for work performed, the Chief Engineer was shocked and questioned the consultant. The explanation was quick, factual and simple…$25,000 was for the specialty valve and the balance was for knowing where to locate it!

The reality and value of a GOOD Business Consultant is that they don’t get caught up in the “Forest for the Trees” mindset…they don’t bring any industry specific “paradigms” to the table.  What they do bring, however, is an ability to listen, ask questions, think outside the box, analyze and provide value-added solutions to the desired growth direction of a business, its owners, and its employees.

The Business Consulting World has an array of consultants and consulting firms.  Some are generalists, while others specialize in a given field.  The vast majority of these consultants aspire to a “one-stop shopping” process, in that the process and methodology that they use, will work for any business. However, once again, the reality is that every business has its own personality…the personality of its owners, managers, employees, products and services offered, market or industry and equally important, their customers and clients.  Without a good understanding of all these operational areas and how they affect the business, a consultant’s suggestions and advice is “wishful thinking” at best!

So with all that said, making the decision “to use or not to use” a business consultant rests on the shoulders of the owner of the business.  A GOOD Business Consultant has “been there and done that” and their methodology and number one objective is helping you and your employees grow the business and be successful, by analyzing the past, dealing with the present and planning for the future!

3 Risk Levels to Becoming a Business Owner

"Starting a business from scratch is by far the riskiest way to become a business owner."

Steve Imke - Pikes Peak SBDC Consultant Tweet

Most of the clients I see want to start their business from scratch, but there are 2 other options to becoming a business owner. The first option is to buy an existing business and the second is to buy a franchise. Clients often tell me that these two options simply cost too much. They argue that they are choosing to start from scratch because it is the cheaper path.

At that point in the conversation, I often remind them that starting a business from scratch is by far the riskiest way to become a business owner. In fact, statistics from the US Department of Commerce say that 65% to 90% of start-up business are likely to fail within the first five years. In other words, only 10% to 35% will have a chance of success. The principle reason for this high failure rate is that most businesses take on too many fixed expenses early on. On top of that, their revenue ramps up slower than planned and the business simply runs out of money before breaking even and turning a profit.

One client who had previously been a pilot in the US Air Force summed it up when he said,

“I guess they had too much payload and not enough runway.”

Entrepreneurs that buy an existing business have a 90% to 95% chance of still being in business after 5 years. The principle reason for this higher success rate is that when you buy an existing business, you already have revenue from customers and have a predictable level of expenses. You know these expenses are less than the amount of revenue, which leaves the business some profit and cash flow to work with. Moreover, existing businesses often have employees that already know their jobs, are well trained, and the business has proven processes to capture customer value.

Entrepreneurs that buy into a franchise concept have a 90% chance of still being in business after 5 years. Although franchises need new customers to generate revenue, the entrepreneur is often buying brand awareness and a proven system. Moreover, most new franchises are able to reduce the cost of goods sold by taking advantage of the economies of scale established by the franchiser since they have franchise-wide buying power.

When you buy a franchise or another person’s business, you also have access to someone who knows both the business and financial model as well as someone who has a vested interest in your success. Obviously this is not the case with start-ups. Let’s not forget that the primary goal of business ownership is to make money for the owner.

Existing businesses make money on day one. A successful franchise will earn the owner income not too long after starting up. However, a start-up, even one that survives, may take months or years to begin to pay the owner a salary for working in the business.

When it comes to business ownership, have you considered buying vs. starting from scratch?

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