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Your Business Needs Insurance

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Archives, Commentary, Global Trade Daily, Special Reports

Your Business Needs Insurance

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Many startups perceive insurance as a luxury, shelving it until they are further along in the company’s lifecycle. However, any business serious about sustainable growth should not postpone this decision.

There is always a risk is involved in the process of starting and growing a company. Having adequate insurance is key to the success of your business and an issue every business owner needs to consider. Business insurance for startups provides valuable protection against the unexpected. Without coverage, threats like theft, fire, data breaches, or lawsuits could disrupt or damage your business.

Once you understand how insurance is vital to your business, you will be better positioned to determine how much of it you need. Business owners must weigh the cost of insuring against various risks and the economic impact of an uninsured loss.

Running a business comes with inherent risks. Protecting your assets is important, yet many new companies often have insufficient insurance. How much insurance should a new business owner secure, and what are the liabilities for being uninsured? That all depends on the needs of the business.

The startup ecosystem is diverse and may or may require different types of coverage. For example, startups that work in the software area will have to protect themselves most from client lawsuits alleging professional liability. Startups working in biotech, proptech, or fintech face constantly changing and often unclear regulatory requirements may need to focus on compliance first.

Thoughtful diligence is needed during the process of deciding on the type of business insurance your startup needs. What kind of insurance best fits your startup? What is the appropriate amount of coverage? Do I need insurance this early in the game? Below are a handful of reasons your business should have insurance:

The Law Requires it

The Law requires businesses with employees to have certain types of insurance: Unemployment, workers’ compensation, and disability are a few.

Failure to carry required coverage could result in fines, penalties, and “cease and desist” orders.

You Could Get Sued

If a liability claim or a lawsuit is filed against you and your business is without insurance, there could be serious and very costly implications. Even winning could cause you to go out of business due to the cost of legal defense. Liability insurance allows you to concentrate on what you do best, running a profitable business.

Insurance Keeps You Up and Running

What happens if your business is affected by an earthquake or flood? P&C insurance covers loss of property, equipment, etc., income lost during a business closure. Business Owners Insurance (BOP) can play a critical role and help a company survive protecting against income loss. BOP also compensates for everyday operating expenses you may have otherwise incurred during that time. Some companies choose to insure lost income and include protection to pay employees for up to 12 months.

Required in Contracts

Some variables come into play when it comes to insurance and contracts: If you lease or rent, the landlord’s policy may not cover you, and you may need to carry insurance. The loan agreement likely contains an insurance requirement if you borrow money to finance buildings, equipment, or operations. Client contracts could specify that you carry insurance.

Common types of insurance businesses should consider:

Workers’ Compensation Board (WCB)

Your business is growing. How do you know if it is time to protect it with workers’ compensation insurance? Most business operations will be required to have workers’ compensation coverage. This covers workers’ medical and wage-loss costs if an employee is injured or contracts an occupational disease while on the job.

Directors and Officers Insurance

D&O insurance is for businesses that are incorporated. In general, D&O insurance provides coverage against the wrongful acts committed by directors and officers. Are you looking to raise money? Many institutional investors, such as venture capital firms, stipulate that a D&O policy must be in place as part of the term sheet before the financing is complete.

Employment Practices Liability Insurance: As your company begins hiring, consider EPLI Insurance. EPLI protects your company from employment-related lawsuits such as sexual harassment, discrimination, wrongful termination, and more.

Technology Errors & Omissions Insurance: A startup providing professional services based on professional expertise should consider E&O insurance which protects against claims that allege damages arising from technology services you have provided. Your customers and partners may even require it.

Fiduciary Liability Insurance: If your company offers employee benefits such as health insurance, stock options, and other benefits, you probably have a person responsible for handling these benefits. FLI protects your company and your employees if someone responsible for these benefits makes a mistake for which they can be held liable.

No company owner can predict what might happen down the road. In a perfect world, natural disasters, injuries on the job, or lawsuits never came to pass, but there is no guarantee that such things won’t happen. For that reason alone, it’s best to have your company insured.

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André Thiollier is a partner with Foley & Lardner LLP

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Archives, Global Logistics, Global Trade Daily

HOW SMALL BUSINESS OWNERS CAN TAKE RISKS AND MAKE BOLD DECISIONS

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Risk is an inherent part of any trade and logistics business, big or small. How you handle risks and the decisions surrounding them can make or break your venture.

No matter how experienced you are as an entrepreneur or a small business owner, taking risks is one thing that can always trip you up. However, without taking them, your trade or logistics business will never have the opportunity to really grow and flourish in the direction that it needs to. The key is to weigh up the risk versus the potential gains and to make your decisions based on these facts.

It’s also important to remember that there is a fine line between taking an unnecessary risk and making a bold decision. The one will see you in trouble, and the other will be applauded as a stroke of genius for going that route. As the business owner, it’s your job to work out if a decision is good or bad. In other words, is taking a chance worth the risk?

UNDERSTAND THAT IT’S PART OF BEING A BUSINESS OWNER

Taking risks is all part of the job description of being a business owner, especially in the startup world and trade and logistics industry. You have to use your reputation and often your own money to get your venture off the ground. This in itself is a risk. You need to prepare to put yourself out there and go for the bold choice if you want to reap the rewards.

PLAN FOR THE WORST, HOPE FOR THE BEST

Just because decision-making, and mostly big decisions, is part of the job, it doesn’t mean that you should just go for it. Any business owner who jumps into a decision without proper planning or research is asking for trouble, making each decision far more of a risk than it needs to be. Planning is critical.

Experienced trade and logistics business owners will look at a decision from all angles, plotting out the various outcomes of courses of action. For many, the most important factor to consider is what the worst-case scenario is if they go ahead with their decision. By figuring out the worst-case scenario, you can see if you and your business can survive should things go wrong when taking a risk. It’ll also help you put mitigating factors in place to help prevent the worst-case scenario from happening.

With all of this planning and research done before deciding, you’ll find that the associated risks are somewhat diminished. Or, you’ll realize that the risks are too great and you won’t need to make a decision at all.

GET USED TO MAKING IMPORTANT DECISIONS

As with just about anything in life, the more you do it, the easier it becomes. The same is true about having to make big decisions. You can reach a point where you can confidently make business-altering decisions without too much stress. It’s just important to ensure that you always do your planning and research first, and don’t get overconfident.

You’ll also likely find that over time you don’t need to do as much initial research or planning. This is because you will be comfortable enough with your business to see the possible outcomes of the decision more easily. You will also have several contingency plans already in place, thanks to previous decisions you’ve had to make.

TRY THE PHASED APPROACH

The most important factor to consider when making decisions for a small business is that you can’t always afford to take a big risk. Your resources are generally less than a larger organization, and that can make it a lot harder to recover if things go wrong. This means that it’s often better to go in a phased approach—making smaller changes or taking smaller risks over a period of time to get to the same outcome as one big leap of faith.

This is a good strategy early on in the life of a trade or logistics business because it builds up a resilience and a better tolerance for risk. You can take the time to build up your resources or recover to a place where you are ready for the next step or phase. All the while, your business is moving forward and not stagnating.

KNOW WHEN TO TAKE ACTION

There are some risks that are easy to evaluate, and taking action is common sense. For example, if your business is in an area that’s prone to break-ins, not having a properly installed safe is a risk that’s not worth taking. Spending the money and installing a safe is a non-negotiable. But with other businesses risks, the answers aren’t always so cut and dried.

The place where most people get tripped up is getting too weighed down on the details of a decision. You can end up going round and round in circles, and miss the opportunity to take that leap.

You cannot wait forever or until things are just right to take a risk or make a big decision. Learn when the time is for research and planning, and when to take action. It all needs to be part of the process—researching possible outcomes, getting advice and input from others, planning for the worst, and then deciding to go or not to go. Inaction is far worse for a business than deciding not to take action.

DON’T BE AFRAID OF FAILURE

There will always be the possibility of failure when making big decisions for a small business. There is no way to avoid this entirely. However, you can’t live in fear of failing because if you do, you will never see your business reach its full potential.

Failure is also a great teacher. Making a mistake or taking too big a risk gives you the chance to learn from those outcomes. You’ll be in a far better place to evaluate a risk next time one comes along because of the experiences you’ve had through failure. In fact, most entrepreneurs will tell you they have experienced far more failures than successes in their careers, and happily learned valuable lessons each time.

The trade and logistics business offers plenty of opportunity for risk taking and making bold decisions. With knowledge, experience, and insight, you can grow your venture in the right direction and carve a niche in an industry that’s highly competitive and demands forward thinking.

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Archives, Global Trade Daily, Site Selection, Special Reports

Is a Seasonal Business a Timely Fit for You? 4 Ways to Make it Work.

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An ever-changing economy creates new opportunities for entrepreneurs, even during these rocky times that COVID-19 has caused.

Whether people are looking for a better work-life balance, a new job after having lost one, or an extra source of income, opening a seasonal business is one strategy that fits those goals, says Chris Buitron, president of Mosquito Authority® (www.mosquito-authority.com).

“Many people are taking this route as a reliable way to generate income,” Buitron says, “because although the economy is changing dramatically in some ways, seasonal businesses still fulfill annual consumer needs.”

“The benefits for a seasonal business owner are attractive: more freedom, both in running a business and having the ability to take a few months off; the satisfaction of providing a service or product to which customers stay loyal; lower overhead costs than a year-round business; a solid second income; or, if done right, a sufficient income by itself.”

Buitron offers these tips on how to run a seasonal business successfully:

Carefully construct your business model. Since you won’t be open year-round, it’s important to account for downtime in your cash flow. “If the seasonal business is your main or only source of income, you’ll need to put in extra work during the season in order to make it through your off-season,” Buitron says. “Make sure you have access to credit and plan your budget very specifically. It’s a bonus if you can find ways to diversify income streams for your seasonal business in the off-season. Determine the other needs of your customers and how you can fulfill them.”

Evaluate the past season and plan accordingly for the next season. “Analyze your successes and shortcomings from the previous season,” Buitron says. “Seek customer feedback to assist your evaluation. Overall, determine why some things worked and others didn’t. The analysis will help you build a solid plan for the next season. Look at areas such as staffing, inventory, and other expenses. Did you have enough employees and how did they perform? Which products or services weren’t successful? Should you introduce new ones? Would it be cheaper, in the long run, to buy your equipment rather than lease it?”

Connect with the public year-round to build your brand. Social media allows a seasonal business owner to build their business, their authority, and strengthen their place in the community. “Your target audience is just as accessible in the offseason,” Buitron says. “You can reach out to them and offer exclusive pricing, or create a rewards program. Publish blogs and post updates on the sites your customers follow. Give them content that can educate them beyond the reach of your business’ services. Showing you care about their lives and the community helps them remember you.”

Attend networking events and workshops. The off-season is the time for self-improvement that leads to business improvement. “Learning and networking opportunities help you and your business grow,” Buitron says. “Local business events, trade shows and conferences are great ways to gain new partnerships and skills.”

“A seasonal business comes with an array of unique demands,” Buitron says. “But with the right combination of good business practices and the passion to make it a way to enhance others’ lives, it can be a profitable and enjoyable experience for the seasonal business owner.”

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Chris Buitron is president of Mosquito Authority® (www.mosquito-authority.com), a nationwide leader in mosquito control with franchises serving communities across the U.S. and Canada. Buitron has an extensive background in franchise industries. He was chief marketing officer for Senior Helpers, vice president of marketing for Direct Energy (home services division), and director of marketing for Sunoco Inc., where he supported the company’s 4,700 franchised and company-owned rental facilities across 23 states (over $15B in annual revenues).

Archives, Commentary, Global Trade Daily

Three Risks of Buying a Business & Profiting off the Opportunities they Create

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Why start from scratch when you can get a great deal on what someone else started?

In today’s sexy startup culture, buying an existing business has lost its vogue. But every year thousands of entrepreneurs become millionaires by buying and growing businesses without the startup headaches of venture capitalists, zero revenue, and no business processes.

If you like the idea of being the sole business owner, improving an okay business and taking things from good to great, buying a business is probably the best opportunity for you. Since every reward comes with risk, I have put together the top 3 risks I see first-time small business buyers face, the profitable opportunities they present, and the diligence to find these opportunities.

Risk 1: The business owner IS the business

The risk:

The owner of the business is a lynchpin. They make all the sales. They manage all the customer relationships. The employees depend on their expertise and training. If you remove the owner, the business struggles and collapses.

The opportunity:

Use this as a negotiating point when bargaining for the deal. If the business IS the business owner, then that person needs to be part of the deal. Structure the buy-out to include an employment contract or consulting agreement, as well as an earn-out. That way the ex-owner is incentivized to hand-off their knowledge and help you succeed.

The diligence:

Interview customers, vendors, and employees. Listen to if they mention the business owner’s name more than the business name itself. Ask employees questions about their job and see if they know the answer, or if they look to their boss for the answer. Review the org chart for an ops manager and sales person who have been in the business a long time.

Risk 2: The employees will flee after change of ownership

The risk:

You buy the business and all the good employees get scared and quit.

The opportunity:

Use the change in leadership to inspire hope and motivate. Or, determine who is holding the organization back and needs to go. Firing bad employees will make the good ones optimistic of a turnaround. For the good ones, challenge them to help grow the company and incentivize them to stay through promotions, profit sharing, or equity.

The diligence:

Work with the current owner to identify key employees. Be your own judge of this, in case the owner is downplaying any key people. Sales, engineering, and operations are typically critical areas. Meet with key employees in advance, if the owner permits, to discuss their ongoing role in the organization and align expectations. You’d be surprised how simply listening to and reflecting the feelings of employees will make them feel more comfortable and taken care of! Ask about the company culture and decide what parts to keep. They may also give you keen insights about the strengths and weaknesses of the company.

Risk 3: Running out of cash

The risk:

You base your purchase price, valuation, loans, and cash forecast off historical financials, only to find out a few months into owning the business that the numbers were all wrong and you are losing cash.

The opportunity:

Negotiate a better price on your deal with findings in a due diligence report. Use the cash forecast in the report to secure better terms on your business loan or lock the owner into seller financing. You can even persuade the seller to pay for the cost of accounting clean-up or bad inventory.

The diligence:

Hire financial professionals to help with your due diligence. This team will research key areas like unpaid payroll taxes, incorrect accruals, bad inventory accounting, and other ways owners can exaggerate their financials, either intentionally or by accident.

Turn these risks into opportunities by performing smart diligence, and you too may become one of the small business millionaires without starting from scratch.

LJ Suzuki is a fractional CFO with CFOshare, an outsourced finance and accounting department for small businesses.