Running any business comes with numerous risks, regardless of whether you're a well-established business or a small startup. According to Small Business Trends, around 80% of companies shut down within two years of starting up. There could be plenty of reasons for business failure, ranging from a poor business model to incompetent management, or insufficient funds.
Startups especially tend to take on a lot of risk, so you need to be prepared for the challenges ahead. One good way to keep your business protected is by buying business insurance.
It’s a common misconception among startups that commercial insurance either isn’t necessary or is just another expense, but getting commercial insurance can wind up being one of the best decisions you make for your company.
Entrepreneurs are busy building a company, so insurance it probably the last thing on your mind, but try thinking of it as a necessary investment. If you want to know why insurance for Startups is so important, keep reading.
1. It’s Required by Law
If you’re hiring new team members, it’s your responsibility as a startup owner to make sure they’re protected. Requirements regarding Workers Compensation insurance vary from state to state but in general, once you start hiring you’ll need to purchase this policy. Many startup founders make the mistake of believing that Workers Compensation only applies to employees, but in reality it applies to those on your payroll no matter their title. Make sure to check with the authorities where your business is location to understand all the requirements around Workers Compensation because failure to carry this policy may result in fines or criminal penalties.
2. To Keep Your Employees Happy
Insurance for startups is not just a legal requirement, but can also be a tool to help you retain top talent. As a business owner, you must understand that your most valuable asset is not the products or services you offer, your most precious asset is your employees.
Therefore, you must protect them in the event of a mishap. Though the law requires you to carry workers' compensation insurance, you can go one step further by offering your employees' attractive benefits like a 401k or pension plan. This is when you’ll need Fiduciary Bond insurance, this policy protects your company against claims associated with errors or mismanagement of fiduciary funds
3. You Will Need it to Invest in Equipment or Property
Regardless of the industry you work in, at some point, you’ll need investments to keep your business moving. These new changes will also require new insurance policies.
As your startup grows you’ll likely need to move your operations out of your garage and into a real office. But to do that you’ll need Commercial Property insurance. Even if you still plan to work from home, your home owner’s policy will not cover any business-related claims. This policy not only protects the physical building, but your equipment and business assets as well.
When looking for the right Commercial Property policy make sure it covers natural disasters as well such as, floods, hurricanes, tornadoes, and fires caused by lightning. Some policies may require a special amendment or add-on to cover these events.
If you’re a service-oriented startup, as you take on more clients it’s vital to have Professional Liability insurance to protect your company in the event that the advice you provide to a client leads to financial losses or damages.
4. To Attract Lenders
Business insurance acts as a risk management tool. And risk management is one major characteristic that attracts investors. So, if you feel your company is ready for expansion and another round of funding, invest in good insurance first because the absence of insurance may scare them away. It shows investors that you’re in it for the long-haul and take the future of your business seriously.
5. Keep Your Investors Happy
Once someone decides to invest in your startup, they’ll want to do everything possible to eliminate risk from the equation in order to protect that investment. As a result, they may require you to carry certain types of insurance coverage. Depending on the kind of company you have, you may need to purchase Errors & Omissions insurance or Directors & Officers insurance.
6. Insurance Makes Your Business Look Credible
You might not have thought of it, but having insurance makes your business look credible. When you get business insurance for your startup, it shows your potential clients that you're a safe bet.
If anything goes wrong with the work you do for them, you have a way to protect yourself against costly claims and you’ll be able to repay your client for any damages. This is one major reason why most services companies carry the statement "insured," "bonded," and "licensed" on their signage.
7. Insurance Grants Peace of Mind
When running a startup, there can be various factors outside your control and accidents can happen at any time. The best way to have peace of mind is to get business insurance. No business owner can predict the future but having insurance will make sure your business thrives as long as possible.
Insurance is something that most businesses, especially startups overlook. Even if you have a flourishing business, you are not safe from unforeseen accidents. Problems may strike any moment forcing you to shut your doors. Therefore, insurance for startups is a necessary investment. Without insurance, you may have to pay out-of-pocket for legal claims and costly damages. So, always understand your industry’s risks and decide which type of business insurance can provide you protection against them.