Small Business Growing Pains: Coping with Greater Responsibilities

As your small business starts growing, you will expose yourself to new liabilities. These liabilities can put your business at risk, and it is important to continually consider expanding your insurance plan upon your annual renewal. Consider these methods for protecting your investment in the years after your business has experienced success. 

Incorporate

The first step to reduce your exposure to liability as your business starts to grow is to protect yourself. If your business gets sued for any reason, you could be held personally liable without the right corporate structure. When you formed your organization, you may have chosen a partnership, sole proprietorship or other type of structure permitted within your state. These structures are the least costly to form, but they can also leave you exposed to risk. Once your business is successful, it may be time to incorporate into a limited liability company, S corporation or C corporation. By taking this step, you are forming a business entity separate from your personal identity. This can protect you from both lawsuit and any financial fallout that may come your way if the business's success is short lived. 

Ask a Broker

The next step after you have incorporated will be to reconsider your current insurance plan. You will typically have an insurance renewal annually. Before going any further this year, consider hiring an insurance broker to help you with your renewal. The broker will do the dirty work of looking into your policy to find any uncovered exposures. The broker will also have access to a large number of insurance companies that can each offer you unique benefits. Instead of sorting through these benefits yourself, you can save a lot of time by hiring a broker, and you will typically have better results. The broker usually charges a fee or commission for his or her services.

Submit Multiple RFPs

Whether you have a broker or not, it is wise to submit multiple requests for proposals from insurance companies. If you are considering only one company, you will have limited choices in terms of plan details. By approaching a number of insurance companies and asking what each has to offer, you will learn the nuances distinguishing many different plans. You can provide a requested format for any response to your RFP, making it easier to compare apples to apples with the multiple responses you may receive.

Hire a Risk Manager

You may find that your insurance costs a lot because of practices you apply in your own business rather than the insurance market as a whole. In order to lower your costs and protect yourself, you can manage your risk by hiring a loss control or risk manager. This individual will look at the ways you have exposed yourself to loss, either by not following occupational guidelines or even by not using the best methods of employee communication. For example, businesses that have employee manuals are less likely to be sued for employment malpractice. You can hire a contractor to complete a risk management assessment of your business, or if you are a very large business, you may even hire a full-time risk manager.

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