Your business safety net

Running a small business is engaging and enjoyable. We love the game, what we do, the people we meet and the buzz of being rewarded by our customers when they pay us.

It is so easy to forget that things can go wrong, and usually it won’t be our fault.

Suppose we might make a mistake which costs our client money. It does happen as no one is perfect, however much we guard against errors. Human nature being what it is, a customer might think we have made a mistake and cost them money, when we have not put a foot wrong. Either way, we need to be insured against action against us. Otherwise a vindictive client entirely in the wrong can cost us a lot of money and ruin our business. Professional indemnity insurance is essential and public liability insurance is important too.

Then again, how well are we insured against damage to our premises? Is our insurance up to date? Do we insure against loss by backing up all our data off-site?

Suppose our key staff have health issues and are off sick for a long time. What if we get sick and need to take time off? Are we insured to hire substitutes? Is our business income insured? Is our health insurance up-to-date?

Being insured for every eventuality sounds expensive, but when we think of the alternative of disaster and poverty we should grit our teeth and pay our premiums. Do you pay yours?

Insuring your business future

iStock_000020557146LargeSome businesses are unique to the individual. If you are a successful writer, then what the clients or readers are buying is you. There are other businesses which are all about the owner; for example, performers such as actors, artists, designers. If the work is so original and cannot be done by someone else, then the income is dependent on the business owner, and that might be you.

Suppose you cannot work for a while. You are ill, really sick. Will your income dry up? You can get insurance which will provide you with an income for a certain period while you get back on your feet. Why wouldn’t you do that, because it gives peace of mind?

Perhaps your business is not unique, but it is your business with a flavour of you? If you could not work, the business would still suffer, even if you have several employees or subcontract a certain amount of work. Of course you should also insure against your getting sick, but you can also get insurance to pay for someone to run your business while you are recuperating. If you never get well enough to work again (perish the thought) you will still have a business to sell.

You might have an employee who is vital to your business. Suppose she has a health problem and has to take months off work. Have you insured your business against losing her services for a while, so that you are able to bring in someone capable of filling her role temporarily?

If it is you who are ill, you need to get treated as soon as possible and get back to work. Do you have health insurance so that you can get treated quickly?

I am not an insurance salesman. I do know that having insurance is not only vital for peace of mind, but is an important lifeboat when the unexpected happens and you have to face a nasty health issue.

Are you insured?

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Why we need the assurance of business insurance

26 Feb 12 upload 011It seems obvious that we should insure our houses and our house contents. We have to insure our cars by law. Strangely many people do not believe in insurance for their businesses.

Of course it is true that many contractors under the control of other people or businesses (such as builders) have to have their own Public Liability Insurance. Many business owners, worried about the cost, skimp on this. Yet the insurance is not expensive. The consequence of not having it can be catastrophic if a customer has an accident and sues, because the cost of defending can be disastrous.

If a mistake in the work we do can result in a loss to a client, we need to be insured against that. Professional Indemnity Insurance covering being sued for at least a few hundred thousand seem sensible. I wouldn’t be without mine, though, touch wood and taking care, I have never had a claim. Again, even if we have done nothing wrong, the cost of defending an action can be terribly expensive and destroy a business, and maybe our wealth.

If we have a business with particular employees or of course ourselves as owners, we can insure against loss of their services in what is known as key-person insurance. It is intended to compensate for business losses in case the important person dies or is unable to work again due to illness.

I insure against loss of business income if I were to be ill and unable to run my practice. Shouldn’t everyone?

You and I may never have a loss of someone’s services or be sued, but you never know. Most of us keep an umbrella handy, don’t we? Why should we leave our businesses and our income open to the elements?

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Keeping your business safe – Part 1

The high wire

Most small businesses rely heavily on the boss. That’s you and I. We may have great managers upon whom we can rely when we are away, but sooner or later, we have to be available to make decisions about the big issues.

However, accidents will happen, and therefore we need insurance, whether it is the sort for which we pay premiums, or our insurance is a common sense approach.

Safety nets

One of the hazards of running a small business (or should I say “challenges”) is when we are offered a really good project which is far too large or complex for us to do. It is beyond our current capabilities. We need to assess the risk to our business in taking that source of business on:

  • Can we do it comfortably by engaging another business as a partner, assuming that is acceptable to the client?
  • Is our insurance cover enough if the project goes wrong or if the client thinks it has? (We need to be covered for wrongful claims too).
  • Can we cope with the stress?

If we can say “yes”” to all those questions, then go for it, because it will be an exciting development and something to talk about in pushing our business forward.

If our answer is “no” to any one of those questions, then we can decline politely and respectfully, and still have the opportunity to make a great referral to a bigger business who may reward us then or later.

It is wonderful to get an exciting new client, but it is honourable and sensible to decline when we know we just cannot meet client expectations.

Have you ever bitten off more than you could chew?

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Why we need to assess the risk in our business assignments and projects

In my last piece I talked about the danger of adapting business agreements and contracts when we do not have the specialist knowledge as lawyers, or indeed as (in my case) a tax practitioner. I suspect that those who are driven to do this are either out to impress their clients or are motivated by the prospect of getting a larger fee than if the work is shared with a professional in the relevant field.

However, even for those who may be very well qualified in terms of understanding what is required in an agreement or contract or other project of any description, the risk in undertaking some assignments may simply be too great. It is sometimes best to pass on a project, and, I believe, take a commission as long as we are up front with our client as to what we are doing.

Let me give you an example. When I was in the larger corporate world the sort of work I did included devising share plans for companies to reward their staff. The idea was that the employees would receive bonuses in the form of shares in their employer, and at the same time the company would save a great deal of money, particularly in terms of tax, in doing so. One project I did took me about three weeks working exclusively, and I remember that my employer’s fee was about £50,000. During the period I was developing the share plan, whilst I knew what I was doing, I had the benefit of peer review and also checked with lawyers that I was on the right lines and that the plan was “watertight” and that it would work.

The client company was looking to save millions, so their Financial Director was not worried about the fee they were paying, and my employer stood to make a tidy profit.

Now I am a principal of a small business. I still have the expertise to do a similar project. What I lack is the opportunity for sufficient peer review and the backing of a large corporate employer. I would not undertake such an assignment and would pass it on to a bigger player, of whom I know a few. After all, it is not just when we mess up that we might get sued. If other things outside our control go wrong it is human nature (and all businesses are run by humans) to look for someone to blame, and even being on the wrong end of misdirected litigation can be very expensive and very worrying. We are also unlikely to have a sufficiently large professional indemnity policy to save ourselves or our company and reputation from ruin.

My message is that not only should we not undertake business activities outside our professional competency, even if we believe that we can rise to the challenge intellectually, we cannot afford to take the risk if there is a lot of money at stake. With a small business it is better to refer on to a larger provider with a more considerable financial clout and be happy with a commission. Our clients will respect us more for our professional approach and we do not need to let our pride line us up for a fall.

© Jon Stow 2009