Unless you have solid connections in the business world, chances are there will be a lot of illusions and questions surrounding the idea of starting a new business. One of the more confusing of these is whether or not to get insurance.
No matter how far along you are in your business, you’ll probably have a few questions about insurance along the way. Some of the more common questions are:
- Do I need business insurance for my small business?
- Do I need business insurance if I have an LLC?
- I have a side hustle from home, do I need insurance?
- Can I get sued by someone who doesn’t work for me? (Am I liable for injuries that happen in a building I don’t own on a property that is not mine?)
- What type of small business insurance should I get?
- Are all insurance company’s created equal?
- What are the small business insurance requirements?
While these are important questions to ask, the fact is: if you don’t take steps to protect what you’ve built, you’re already taking a risk.
The good news is, insurance for your small business doesn’t have to be complicated if you know what to look for.
But first, a story…
My Costly Lesson in Small Business Insurance
Like many new small business people, I slowly stumbled through the small business insurance world.
Bootstrapping a business can have you thinking of insurance as a last priority to a startup. To be honest, of all the things I was stumbling through in opening my first business (company structure, marketing, tax set up, banking, etc.) insurance was not even on my radar.
Only after I got my “business feet” under me a bit is when I started to think about insurance. I searched the internet and found a place that offered “garage keepers insurance”. Having a custom auto shop– it seemed to make sense that this was the type of insurance I needed. Feels foolish now as I write this.
Luckily for us, we had no major issues before this time. However, if something did happen? It could have easily sunk the company before it even started.
I signed up. I felt safe having made this smart addition to my new business world.
Fast forward to year five…
With 55 projects in the works at our first location, our company was bursting at the seams. There was no room for our already stretched staff and no way to take on the new projects people were begging us to get in the door.
Realizing that growth was coming quickly, we started to focus on the expansion of our original location. We knew expanding our services into the body and paint world was a necessary step to not only control quality but also to offer the true one-stop-shop experience we wanted to provide.
As a self-funded and bootstrapped small business, we were looking for feasible a way to make this happen.
You see, paint booths are expensive but as luck would have it, one came up at auction. After a heated auction battle, she was ours. A beautiful double-down draft system. Things were falling into place nicely.
Then came the 3 weeks working on the roof in our 120-degree Arizona sun to dismantle it…
We came to a point where we would require a crane to pull the exhaust stacks off the roof. My dad just so happened to know a guy (who knew a guy) with a crane. He called him and much to our surprise both men showed up for the job.
Mr. H walked on the scene. When he got close enough to me, I could smell the results of the wild Sturgis trip he bragged about. Being downwind, I nearly got drunk myself!
When he ventured towards the roof, I told him we were rigging up the stacks and there was no reason to go up there. He climbed the ladder anyway. At the top of the ladder, my dad warned, “be careful where you step, we are pulling this roof down.”
Maybe you can guess where this is going…
I guess you could say that something clicked in Mr. H’s head. He darted not towards the ladder he climbed up with, but to the end of the roof itself. When he got to the end, he had the bright idea to stand on the water gutter system. (The type that collects water at the end of the roof) I know for a fact the engineers did not design the gutter to hold our alcohol-laden new friend’s weight.
When it gave way, he slid down grasping onto the gutter. He hung on for a moment then dropped a foot to the ground. I rushed over and saw his arm was slightly cut. His friend in the crane–the one we actually invited there–was laughing. We finished the job and thought no more of this.
The Perfect Launch
It’s a story for another day. But our idea of expansion was hit by every roadblock imaginable. To hedge our bets we were also scouting second locations and out of desperation choose to proceed this way.
As a bootstrapped company we knew opening a new location was risky. We had just enough funds to open it and nothing more. It needed to gain its footing quickly and make its transition to profitability without skipping a beat.
In other words, It needed to go perfectly.
After securing the location, building out the offices, and getting ready to go– we were excited to market the launch.
After the big announcement, a legal letter from Big toe Law (Changed because I desire no more further stress over this situation) arrived. You see, they would be representing Mr. H. for free in his major injury claim. Now, if you know me you know that I hate injustice. In fact, that’s part of the reason I made this blog.
I knew Mr. H was not injured in the fall. This was bolstered by the fact that he would change his injury type three times while we fought over it. Yes, you read that right… He changed what he said his injury was three times. Unfortunately, these inconsistencies didn’t matter much. When your sued the burden lay on you to fight it. Even if you completely in the right it is costly and stressful.
It’s not fun being sued as a small business owner, and lawsuits are very expensive. Luckily, I was able to find the best lawyer in all of Arizona to help me navigate the process Brad Denton and Denton Peterson Law. However, there was still the matter of collateral damage unrelated to the case itself to consider.
Remember when I said I needed everything to go perfect in the new launch? Well, when it didn’t it left us strapped for cash. My desire to fight injustice until the bitter end was met with a lot of complications.
We had never taken a loan. We had perfect credit. We had great financials. Maybe it was time to get a loan. We were sure we would meet the SBA loan requirements, what could go wrong?
When trying to get a small business loan, many questions were asked. One of these questions was “Are you in a lawsuit?” The red tape was getting harder to cut through. Needless to say, since we didn’t meet the small business loan requirements, we were road blocked with no way of getting the funding we needed.
Although the option seemed unfair, we were forced to make a difficult decision. Either settle with the man or sink the ship altogether. I have no doubt if had we had the runway to let Brad and his team go to work we would have come out on top. But we didn’t have this option.
So, what does all of this have to do with Insurance?
The Bottom Line
Remember the garage keepers insurance that I purchased five years prior? As it turns out, this type of insurance doesn’t protect you offsite. So in the case of a non-employee on a building we didn’t own, we were liable. But do you know what would have protected us in this situation?
Liability insurance.
If we had liability insurance this entire mess would have been handled by our insurance company. An easily winnable case for them that wouldn’t have resulted in 8 months of sleepless nights for us.
At the end of the day, there a many different types of insurance, and depending on the business you’re in you may need quite a few to ensure you’re fully protected against the “Mr. H’s’” of the world.
This is just one real-life example of why it’s so important to get the right kind of insurance for your small business and why opting for cheap small business insurance is one of the most expensive mistakes you can make.
How to Find the Best Small Business Insurance
On your list of professionals, you need when managing a small business, a good small business insurance agent is one of them. There is a huge difference between a good and bad insurance agent and seeking the help of a bad one could cost you thousands of dollars in the long term. Now I will state I am no insurance expert so you should still do your own research but here’s some of the basics.
- Do your homework- Meet several agents and several companies. Its best to get a couple quotes and have the agents offer recommendations for coverage. Also make sure to look online at review for not only the agent but also the company they work for. Some insurance companies live to please their customers, and some do everything they can not to pay out when the time comes.
- Learn the differences between industry type insurance offerings (particular to your product or industry). I implore you to dig deeper but some of the major offerings include
-General Liability- Its what it says a general encompassing insurance policy for property and bodily injury.
-Professional Liability- For service offering companies in the result that there is a service offered that leads to type of issue. Think of a CPA whose substandard work causes an issue.
-Product Insurance-Insurance for a product you offer or produce. Here you would think of a wheel manufacturer and what happens if your wheel has an issue and causes an accident?
-Property Insurance- The coverage that protects your property. If you own the property, you must have this incase of fire, vandalism etc. Many building owners also require you to have some sort of insurance while you are renting their building to cover them.
-Umbrella policy- This tends to cover all the extra stuff that may not be included in other policies.
- Before you even start your business look into insurance. This will be a large, fixed cost for a small business and one you should be aware of from the start. Improper coverage has been the demise of many a small business.
I can’t stress this enough. Interview and find a good agent and who represents a great company. On your list of professionals, you need in your arsenal as a small business owner this is one of the tops. Like learning about insurance? There’s more to come with stories of fires, robberies and shady insurance company’s. Stay tuned….
