How To Prepare a Business Insurance Budget
By Gregory Boop. Business Insurance Expert
Starting a business can be the most rewarding experience of one s life. The business must have capital to start. A significant part of the starting budget will be for proper business insurance. Below I offer a logical way to approach your business insurance budget.
Time Required: Your business insurance and risk management budget requires constant review.
Here s How:
Prepare a Business Plan – Without a business plan, you cannot predict what insurance you will need and what it will cost. Start with a statement of what your business will do. Build on that statement and plan ahead three years.
- How many employees?
- Will it use vehicles?
- What is projected gross?
- What is projected net?
- Will it own or lease space?
- Will the public or visitors enter the premises?
- Will employees enter client s premises?
- What corporate format will the business have?
The plan does not have to be 100% accurate. But, you must have thought it out.
Prepare to Purchase Insurance – Sounds obvious? It is, but business owners frequently do not research and prepare to purchase insurance. Research local agents and brokers and insurance companies. Ask friends, family and colleagues for recommendations.
Start With Must Have Insurance – Certain insurance you must have or you cannot do business. Start your budget with the premiums for this must have insurance.
What is must have insurance? Here are examples:
Establish the must have insurance budget first. New business owners are often shocked at this expense.
Budget for Insurance Necessary by Contract – Next, determine what insurance is necessary to comply with contracts. Your lease will require property insurance naming the landlord. Clients will require employees to be bonded and insured. Public contracts will have large insurance requirements.
Insure Your Most Important Asset: You and Your People – Health insurance may not be a mandate in your state. Life insurance is not a mandate. But, consider some level of health, life and disability insurance for your employees and for your self. Section 125 Plans and High Deductible Plans are excellent, inexpensive, options for employers.
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Insure the Second Most Important Asset: Customers – After making sure you can do business legally and provided some protection for you and your employees, budget to protect your customers with liability insurance. You will want to insure against damage to your customers or their property with liability insurance. Selling, manufacturing or distributing products will require product liability insurance.
Insure Continuity – Next, insure for the continuity of the business. Consider:
Budget for Risk Management and Reduction – In a perfect world, I would put this at the top of the list. However, rmost businesses have nothing left over for risk reduction.
At a minimum consider the use of a written safety policy. If possible, consider the use of a third-party safety service to do this for your business.
Managing and reducing risk lowers premiums. Include risk management from the start of the business and you will be able to follow the reduction of premium expenses over time.
Have the business plan written down before meeting with any insurance representative. Do not create the plan at the initial meeting. That is how your business ends up with coverage it does not need.
How much should the budget be? It is impossible to generalize. As a general rule, consider 20 – 30% of predicted gross sales as the baseline budget. This is too low for construction and manufacturing and too high for home-based consulting. Ask colleagues their experience.
Remember that premiums are tax deductible .
Do not go into business without being able to purchase must have insurance. I know of a nice guy whose brother-in-law fell off of a roof. The nice guy had no workers compensation coverage, liability insurance, or any other way to feed the now crippled brother-in-law after the accident.
You can be sued individually, regardless of corporate format, and business insurance .