Starting and running a small business means having a positive attitude. That includes thinking about what could go wrong - however much we'd prefer not to - and putting in place good risk management measures.
All businesses face certain risks - many that may be outside our control. Having a plan to mitigate these risks significantly increases the chances of success.
And one of the primary ways to reduce risk is investing in the right insurance. In this guide, we'll outline 10 critical reasons why you need insurance, no matter what stage you're at in your business journey. We'll also give you some tips and advice on what cover you need and how to ensure you choose the most suitable provider for your business, and ways to get the best bang for your buck.
Since they're the experts (and they have a great solution that we use here at Farillio), we asked our friends at Digital Risks, to collaborate with us on this guide (in fact, they did a lot of the hard work!). You'll find their pragmatic, helpful expertise, tips and guidance all the way through.
If you're looking for an easy read on the different types of insurance you might need, take a look at the separate guide we produced with Digital Risks: Insurance 101 for small businesses. From lawsuits and cyber-attacks, to thefts, slippers and trippers, floods. fires, food poisoning and social media mishaps, this separate guide explains what cover is relevant and, crucially, which areas your business should have covered, as a matter of law.
10 critical reasons for getting insurance
1. It's the law
Some cover is a legal requirement and you could be criminally liable if you don't have it in place. Employers' liability insurance is a good example, as it is necessary for any business that employs staff, including freelancers and contractors, volunteers and interns.
There is a common misconception that you will automatically be covered by your co-working space, which is unlikely to be the case, so don't get caught out.
Fines for not having this cover in place can be up to £2,500 a day, so it's not something to ignore.
Professional indemnity insurance may also be compulsory for members of some professional bodies, as it's required by their regulators. Solicitors, financial advisers, accountants, architects and some healthcare professionals fall into this bracket. (If you're one of these businesses, check the rules and guidelines published by your regulator). Check your client contracts too - even if you're not regulated, you may be legally obliged to have this cover in your contractual commitments.
2. Accidents happen - and the costs can be scarily high
It's the (mostly) unexpected moments of clumsiness, lapses in concentration, or freak occurrences - often outside of our control, that can cause the most disruption, cost and derailment to a small business.
You can be doing everything right, engaging good people, training them well, keeping your premises uncluttered and in excellent condition, coding and hosting your website in all the right ways, and still something goes wrong.
And it's not just the cost to you if things going wrong. If you damage something that isn't yours and/or put others at risk, legal and compensation costs can be very high.
Insurance can cover you for all of that, including your loss of income during times like these. It can even extend, if you want it to, to the costs of managing your PR (crisis communications) - one less thing to stress about!
3. It keeps the 'wheels on the cart' of your business
It's not just the physical damage (e.g. fire, flood, heating fail), that affects your business if there's a sudden disaster.
It's also the business downtime and loss of income that means a second hit to your bank account.
There may even be a third one, that is less easily to quantify, if customer contracts can't be fulfilled and you find yourself faced with breach of contract claims and irrevocable damage to customer relationships. Thankfully, many insurance policies cover you for these risks.
A good policy will help get you up and running again in no time - minimising the impact on your bank and your stress levels.
4. Unpredictable customers
We need them, we love them, we look after them as best we can. But sometimes, in spite of our efforts, we fail to please.
A customer could complain that you've failed to deliver, harmed their business, or otherwise breached the terms of your contract with them - and on occasion, the lawyers get involved.
If that happens, professional indemnity and legal expenses cover is invaluable, while crisis communications cover can also help.
5. Protection in a virtual world
Over 52% of all micro and small businesses were hit by a cyber breach or attack last year and the costs ran into thousands (and more in some cases).
That means cyber insurance is something most businesses cannot afford not to have. (Digital Risks' ultimate guide to cyber security for small businesses is a compelling read on why this risk is real and serious, if you need further convincing.)
6. The buck stops with you
Most company directors take their responsibilities seriously, but that doesn't mean things don't crop up that challenge them.
Yet, many directors don't realise that they can be prosecuted personally and even face prison sentences in the worst cases. But before you hit the panic-button, there's cover for that.
Directors and officers insurance cover (D&O for short) will help you to cover the costs of fighting your case and pay any successful compensation claims against you.
7. It's gone down the loo…!
We've never been more mobile.
Most of us run our businesses remotely to some extent and it's rare for anyone in business not to be using smartphones, laptops and tablets in addition to, or instead of more traditional desktop equipment.
And we've all heard (or been the subject of) the stories of mobile equipment left on trains, falling down the loo, getting misplaced after a big night out, getting smashed, stolen and/or simply failing to work.
That's why contents and portable equipment insurance is a must.
8. Did you read that tweet….?
Everyone's a publisher, it seems - reluctant or otherwise.
But one misjudged post by someone in your business could trigger charges of defamation, making false statements or even copyright infringement (including accusations of stolen images and photos).
Media liability insurance exists for exactly these kinds of scenarios. It covers the costs of protecting your intellectual property too.
Take a look at our intellectual property guides for more help with these kinds of dispute.
9. It will help you win business
We hinted at this earlier.
Customers will generally expect you to have cover and it is often a contractual condition of them doing business with you.
Don't give them a reason not to say 'yes' to your business.
10. It demonstrates you're running an investible proposition
Your shareholders and any future investors will expect to see a well-managed and well protected business.
One of the key elements in any checks that they run on you will be whether you're responsible about managing risks and have sensible protection in place in case anything goes wrong.
Don't give them a reason to stop investing in, or considering, you either.
You'll be expected to have core policies like Directors and Officers, professional indemnity (if relevant), employers' liability and public liability cover in place.
Business is risk..
Risk can derail you.
But insurance makes sure it doesn't.
You can afford to tick this box. You can't afford not to.
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