One of the drawbacks to owning a growing business is having more at stake. An expanding business is likely to be having dealings with an ever-increasing number of individuals, getting involved in a wider range of commercial activities, even expanding into new locations.
A growing business usually requires a growing workforce. With more equipment and larger premises come more expensive rent payments. In such circumstances, any revenue-disrupting interruption to its activities can soon escalate into a cashflow crisis.
In short, the cover that was sufficient when you were a sole trader or running a scrappy start-up isnât likely to be adequate once youâre heading up a thriving enterprise. The end of the financial year is a great time to think about how your business has changed over the last 12 months and review your insurance policies.
âThe cover that was sufficient when you were a sole trader or running a scrappy start-up isnât likely to be adequate once youâre heading up a thriving enterpriseâ
Employersâ liability insurance
When it comes time to make your first employee hire, youâll be legally required to take out workersâ compensation insurance. You should consider taking out a form of back-up workersâ compensation insurance called employersâ liability insurance. This is because itâs possible for an employee to suffer an illness or injury that is job-related yet not covered under a standard workersâ compensation policy (employersâ liability insurance can cover for these type illnesses, injuries and fatalities.) Even if itâs not a legal requirement, to be an employer of choice, you could have employersâ liability insurance as an additional benefit if you want your employees to have better cover in the event of an employee suffering a misfortune.
Directorsâ and officersâ insurance
A growing business will inevitably become more hierarchical and possibly move from a sole trader or partnership business structure to a company one. In any largish enterprise, there are individuals â executive directors, non-executive directors, executive officers, senior managers and the company secretary â who shoulder important responsibilities.
Understandably, these people donât want to be placed in a position where they could suffer personal financial loss as a result of doing their job. By providing directorsâ and officersâ insurance, a business owner can provide cover to key staff and board members. That means they can be reimbursed for their legal costs if competitors, creditors, employees, liquidators, regulators or shareholders take legal action against them.
Business interruption insurance
The more your business grows, the larger its fixed costs are likely to be and the more expensive an interruption to its smooth functioning will become. A suburban cafĂ© may only be out of pocket a few hundred dollars if a blackout means it has to shut down for the afternoon. In contrast, itâs estimated Starbucksâ recent decision to close its US stores for an afternoon (to provide racial-bias training to staff) cost around US$12 million (A$16 million).
If an unfortunate event means you need to shut up shop, your revenue will typically be severely impacted during the shutdown period. Nonetheless, youâll probably continue to face the usual wage, rent and other business costs. As explained more fully here, business interruption insurance can provide a pay-out to cover you for those costs, as well as make up for lost sales.
Cyber insurance
In the digital age, an IT issue can be as devastating as any fire, flood or storm. The two threats businesses, especially smaller ones with limited IT budgets, most need to worry about are ransomware attacks and data theft.
A ransomware attack results in a businessâs files being encrypted. Important data is rendered inaccessible, which can make it difficult or impossible for a business to keep operating â until a ransom is paid to return things to normal.
Governments in Australia and elsewhere are tightening privacy regulations and stiffening financial penalties for data breaches. If a malicious actor overcomes your cyber security and captures your customersâ personal data, the consequences can be more serious than brand damage. You could find yourself being investigated by the government regulator and being sued by your customers. As explained more fully here, cyber insurance can help cover financial losses arising from a cyber security breach.
A 60-second primer
Unfortunately, thereâs no one-size-fits-all solution that addresses the insurance needs of every growing business. But you can find out more about the policies discussed above, as well as some others that may be useful, in the one-minute-long, David Koch-narrated video.
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