Starting a business can be scary, and exciting, and overwhelming. There are so many variables to think about, none greater than “how am I going to make money?”
We work with lots of businesses, many of which are in the startup phase. Surprisingly, many of them are unaware of, and consequently, shocked at the price of insurance. For many of them, this wasn’t “factored in” to their startup costs. It’s not that it is too expensive, but when a line item goes from $0 to $1,000, especially in the startup phase, it can be a big jump.
Here are a few tips:
1. When you are registered as an entity, go buy insurance. When you receive confirmation that your entity has been formed, congratulations, you now have an exposure! While it is a good idea to seek advice prior to forming, this is the time to put it in place. What to expect:
a. Pricing can be affected by a multitude of factors. Those factors include annual sales, annual payroll, employees, square feet occupied, etc.
b. Different types of business may require different coverages. Do you sell a product? Do you offer a professional service? Both require their own unique coverages.
c. Most likely you consulted with an accountant and/or lawyer when starting your business. Be sure to consult an insurance professional the same way. We’ve had business who couldn’t even open their doors when they received an insurance proposal.
2. Employees are expensive! Worker’s Compensation laws vary by state, but most likely, when you add your first employee, you’ll need to purchase work comp. While it is exciting, be sure to discuss what pricing may look like long before you need to add an employee!
3. Growth is good! But it also can raise your rates. As mentioned above, many factors affect pricing. Sales growth is excellent and means you are doing well! Remember to factor in the future costs of insurance as you grow. It’s a good idea to know your rate factors and be able to forecast your insurance costs into your growth model. Again, many businesses are surprised to see their rates go up when they double their sales in a year!
The bottom line is that you must think about and begin the insurance conversation early in the startup phase! And once you are up and running, you need to have open lines of communication with your agent about what your future costs may be!
Remember, if you are starting to pay a lot for your insurance, it usually means you are growing! And that’s a win!
