Running a business can be rewarding, challenging but also stressful. While you will are taking control of your earning potential and the upside can be great, there are also a lot of outlays to make initially and deciding what you spend your limited resources on and what you don’t can be tricky. It can be tempting to put your money towards things that are going to make money, and put off spending on anything that doesn’t generate revenue, like insurance!
You shouldn’t think of insurance just as an expense, instead think of it as a protection plan, protecting your livelihood should an unforeseen (and rather costly) event occur. It will also provide some comfort and peace of mind.
The types incidents and claims that a small business could come up against vary greatly, from slips, falls and other accidents through to claims for property loss and natural disasters. Even workplace incidents like harassment.
So to give you a hand we’ve outlined a few of the key considerations around the need for adequate insurance for your business.
Is insurance mandatory for your business?
In Australia for some business sectors you’ll find certain types of insurance is required. For example you’ll find Professional Indemnity is compulsory for finance and mortgage brokers, real estate agents, architects/draftsmen, bookkeepers and agents – so typically this done when a business is setting up and establishing itself.
If you rent your premises, public liability may be a requirement from your landlord. Or if you take out a contract with a large organisation they may stipulate that you have certain insurance to work for them. For example handymen are often required to have at least $5 million public liability cover to secure work with real estate agents.
How would you keep your business going if the worst was to happen?
If your business was impacted by an event which meant that your stock, equipment or even your premises were seriously damaged or destroyed, would you be able to cover the restoration costs? Would you be able to sustain the business whilst you were getting things back in order and unable to trade?
Have your protected yourself and your assets?
Society is becoming more and more litigious and as business owner you could be in the firing line if there are any allegations of mismanagement, misconduct or someone in the business has been behaving in appropriately. It’s not just your business assets that are at risk, your personal assets are also on the line. Having a Management Liability policy in place can cover you not only for your legal and defense costs, but also for any damages awarded, fines & penalties and even investigation costs.
Could your business cope with a tax audit?
A recent focus of the ATO is random audits of 100’s of small businesses across Australia. The thing with tax audits is that even if your books are in tip top condition the audits themselves are generally time consuming and can be quite stressful. The time spent working with the ATO to give them the information they need can mean taking your eye away from your business. Having cover for Tax Audit can help you cover the cost of a professional to help you through this process. You can read more about the focus on Tax Audits in this article: https://www.bizcover.com.au/insights/tax_audit_prep/
One example of a family business that should have had tax audit cover is a cleaning company who was approached by the ATO for an audit. While they felt their books were in order there was much more to be done, including hours of paperwork , so an accountant had to be involved and it also took one of the family members away from their duties so they couldn’t contribute to the day to day running of the business. Which all resulted in a significant impact in cost, time and disrupted focus occurred.
The cyber crime is on the rise, cyber insurance may be required
Many small businesses think their business is too small to attract cyber criminals yet in today’s world size doesn’t count and all businesses are becoming increasingly vulnerable – in fact almost 70% of Australian businesses experienced a cyber attack of some form in the last 12 months and Hackers are on the lookout for businesses of any size with valuable data they can sell on the black market.
Why are they interested in small business? Small business websites are often used as loopholes to then break down the security of other businesses and get into their systems. And because they often don’t have the security systems in place to prevent an attack they can be an easy target for things like customer data, intellectual property and bank account information. The following example show why cyber insurance is an important part of your risk management plan as it provides protection against the expenses and legal costs associated with data breaches.
A small recruitment firm which experienced three separate instances where their systems were breached. They subsequently found the bank account and driver’s license details of 500 on-hired contractors had been stolen. They were able to claim $200,000 for forensic and legal costs as well costs associated with notifying the parties involved and credit monitoring services.