Starting your own business requires tireless effort, determination, time and money. You’re faced with countless challenges to get your enterprise up and running, such as establishing robust contracts, hiring the right people, honing your products/services, sourcing your customer base, brand building, advertising and marketing, dealing with the bank and finances. Arranging insurance is often one of the last things you might think of – yet it’s one of the first things your business will need.
What is risk management?
Anyone who has ever made a business-critical decision can relate to the adage ‘forewarned is forearmed’. When you’re aware of the risks you could face, you can ensure the right plans are in place to mitigate the negative impact.
Understanding the risks your business could face will enable you to build the resilience you need to get your dream off the ground. Risk management is more than just an insurance policy – it’s an enabler for growth.
The insurance risks facing a start-up business
Every business will have its own unique insurance needs. Factors such as industry, location and size will all have an impact, as well as the risks that are specific to your operation.
However, there are some risks that all businesses will face, and necessary insurances to provide the protection needed at outset. Let’s look at these and why they should form part of your risk management plan.
Employers’ liability
This is mandatory for all UK employers and covers your liability for work-related injuries or illness that your employees might suffer while working for you. It protects your business from the impact of legal costs if an employee alleges negligence.
Property
Think of this as the business equivalent to your home insurance. Property insurance cover protects your business premises and physical assets such as stock, machinery, equipment from risks such as fire, theft, flood, etc.
Public liability
If you interact with the public in any way – either working out on-site or having visitors to your business, it’s strongly recommended that you have public liability insurance. It’s designed to protect your business against the cost of personal injury or property damage made by your clients/customers or members of the public.
Product liability
As the name suggests, product liability insurance helps cover you and your business against claims made against any product you make or provide if proven to be found faulty or cause injury.
Cyber risks facing a start-up business
The news regularly reports on the latest cyber-attack to hit a business. Whilst the headlines talk about household names, the cyber threat to small or start-up businesses is just as real – if not more so, due to the resources available. Operating a business will involve holding customer data, sending invoices or even just operating with an email address. This can leave you vulnerable to a cyber-attack. Cyber risk management is not just about cyber liability insurance which provides protection against a host of cyber threats, including hacking, stolen data and system failure. It’s about understanding the cyber threat to your business, looking at systems, staff training and data management.
Directors’ and officers’ – the risk to your personal assets
Directors’ and officers’ liability insurance – also known as D&O insurance – is now considered a crucial form of protection for all businesses. It is often a requirement before investors and board members risk their personal assets to serve your company.
Directors, company officers and senior managers can be held personally liable for the actions and decisions they make on behalf of the company. If they do not act within the law, they could find themselves facing fines and needing to pay compensation for damages that could result in risk to their personal assets.
Protecting your business and the people that matter most
Smart business owners recognise that, to ensure future success, having a business protection strategy in place is crucial. In fact, it can mean the difference between your company surviving or going out of business.
This doesn’t need to be complicated. There are three key areas to consider at outset:
Key person cover
Key people are the individuals on whom the business is dependent in some way. It could be the founder or business owner, but it could also be a critical salesperson, a creative, or an engineer who is at the heart of your proposition. Key person insurance provides the funds to continue trading, to maintain profit, fund a replacement, or pay off a bank loan.
Business Loan Protection
As a start-up, it’s highly likely that you’ll have taken out a loan or finance to get your business off the ground. Loans are an efficient way to support investment, growth and cash flow. But have you thought about how you would service this loan if the business owner or a person on whom the business relies, were to suffer a serious illness or pass away?
Business loan protection provides the necessary funds to repay outstanding loans and debts as a result of such a loss.
Shares or equity in a business may be your most valuable assets. Your ‘company will’ has one primary function: to spell out the wishes of the business owners in the event of their death or critical illness.
Shareholder protection ensures control of the company is retained by the appropriate individuals and the beneficiaries are financially protected if a shareholder or partner were to die or be diagnosed with a serious illness.
Risk management as your business grows
There are of course many other areas of risk and business insurance to consider, such as business interruption, professional indemnity and motor fleet – these will all depend on your specific needs and circumstances. Then there are the wider areas of providing benefits and looking after the health and wellbeing of your employees.
Reputation
You might not consider your reputation as a risk that needs to be managed. But all the risks outlined above can have a negative impact on your business reputation – regardless of whether you’re found to be at fault for something that has happened.
Your reputation will be one of your biggest assets as your business grows. Whilst it’s not easy to specifically insure against the loss of reputation – especially for start-ups and small businesses, it is entirely possible to manage the risk of damage.
By having the right insurance and risk management programme in place, you’ll be aware of the risks you face that could damage your reputation and have the protection your business needs.
Managing cash flow
Most of us are used to managing our own personal or household budgets – but what about the cash flow to keep your business trading? Being aware of cash flow problems is the first step in preventing disruption to your business. Developing sales forecasts as well as profit and loss forecasts will help you calculate your business’s cash flow. Once you understand this, you can start identifying and solving, potential problems, such as quieter months, stock shortages etc.
Seeking professional advice from a team who specialises in start-ups and small businesses is the key to protecting the business you’ve worked so hard to get off the ground and building resilience to overcome the challenges you face.