Protecting Your Startup Business

Small Business Public Liability Insurance
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Being involved in a startup can be such an exciting time. I know this because I’ve been involved in a few myself.

Often it starts with a big idea, or in some cases there is no actual idea other than the desire to start a business.

There are a thousand things going through your head, mainly around whether or not the business is actually going to be viable and make you some money.

One thing that many startup founders overlook is the need for business insurance.

Yes I know that business insurance is the last thing that you’re probably thinking about, but if you’re reading this article I assume that you have some interest in protecting your new business.

Why Bother Insuring a Startup?

Often I’ve heard startup founders say things like ‘I won’t bother with insurance until the business is actually making money’.

On the surface that seems fair enough. I mean, if the business isn’t making any money, what is there to insure?

But that’s the thing about insurance. It’s not just about protecting what you already have; it’s also about protecting what you don’t have.

What do I mean by that?

Well you know the saying ‘I’ll sue you for everything you’ve got’? It’s not exactly accurate, because you can be sued for a LOT more than you’ve got.

Let’s say your startup is involved in an incident which results in a loss to another person or company. This could be through property damage, personal injury or other financial losses.

You or your company (depending on how your business is structured) could be liable for costs anywhere from a few thousand dollars to a few million dollars.

Just because you and your business only has $10,000 in assets does not mean that’s all you’ll have to pay. As a result you could well find yourself bankrupt, which will hurt your ability to start another business in the future.

These types of risks can be protected against with policies such as professional indemnity and public liability insurance.

Still not convinced? In a piece published by Australia’s leading website for startup business, StartupSmart, it was revealed that 85% of SMEs fail after suffering an insurable loss.

By ‘insurable loss’ it means a loss that could have been insured, but in this case was not.

Given that startups of any kind have a fairly high rate of failure, it seems crazy to significantly increase the risk of failure by not taking out the right insurance.

What Needs to be Insured?

The types of insurance that your startup business will require will depend on the type of business you are running and how it is structured.

In the following table we have listed a number of different scenarios for startups and the insurance products that should be considered.

Some we have listed are fairly obvious, but there are some others which may less obvious to someone who is new to running their own business.

SITUATION 1: All startups will at least have a laptop, a smartphone and other electrical equipment
RISK: The items are stolen or damaged and must be replaced
SOLUTION: General property cover can cover the costs of replacement for a range of ‘tools of trade’ including laptops.

SITUATION 2: Your startup has stock which is stored and sold
RISK: Loss of stock due to theft or other events
SOLUTION: Your stock can be covered under a business insurance pack

SITUATION 3: Stock is transported to various locations by your business
RISK: Loss or damage to stock whilst in transit
SOLUTION: Transit insurance can be included in a business pack which covers loss or damage to the stock whilst it is in transit

SITUATION 4: You operate your business from leased premises
RISK: Damage is caused to your premises which is not covered by the owner (such as glass breakage)
SOLUTION: Glass insurance will be mandatory in most cases when you lease space for your business

SITUATION 5: You have visitors to your shop or office (including home office) or other premises
RISK: A visit injures themselves whilst on your premises and you are then sued for compensation
SOLUTION: Public liability insurance will cover the costs of a personal injury claim against you and your business

SITUATION 6: You provide professional advice as part of your business activities
RISK: Advice you have provided results in a financial loss to another person or company and they sue you for damages
SOLUTION: Professional indemnity insurance will cover the costs of a claim against you for poor or negligent advice

This list is by no means exhaustive, but it does show some of the main forms of insurance that any new business needs to look at.

I strongly recommend that you speak with an insurance broker about your business rather than relying on a simple list like the one above.

Operating From Home

Many new ventures originate in the founder’s garage or spare bedroom at home.

This is a great way to start a new business, as it saves a huge amount of money in rent at a time when cashflow is incredibly important to your business.

Unfortunately many people running their business from home do not realise that their normal home insurance provides no protection for their business activities.

Step one in this case is to let your building and contents insurer know that you are operating a business from home, as in some cases they may void your insurance entirely if you have not told them.

Some insurers are nice enough to extend your contents insurance to your business assets, but generally this is limited to a few hundred dollars worth of cover.

If your only business assets are a desk and a laptop this might be okay, but once you start including other electronic equipment you may quickly find that you have gone over the limit.

All home insurance policies will include public liability insurance. This means that if a general visitor to your home injures themselves you will be protected from the costs by your insurance.

But this does not extend to business visitors in the majority of cases.

If someone is visiting your home as part of your business activities, you will only be covered if you have taken out separate public liability insurance for your business.

You can learn more about insurance for home businesses by following the link to our dedicated guide.

How Much Should I Budget?

Answering this question is difficult without knowing more about the business.

A consultancy business run from a home office could be insured from as little as $500 per year for basic cover, and this figure could potentially be less if you shop around.

The amount you need to budget for will increase as the perceived risk of your business increases. What I mean by this is that the insurer will charge you a higher premium if they think you have a higher chance of needing to claim.

If your budget is very tight and you simply cannot afford the full protection you should have, then at least take out some insurance so that you are covered for the major risks.

If I was starting a new business and could only afford one type of insurance, I’d probably go with public liability since this will protect the business from the big scary risks of personal injury and property damage.

Public liability can be had from as little as $300 for a micro business, with the average cost being closer to $800 for a typical small business.

More Information

If you’re running a startup business or are about to embark on such a venture, it’s certainly worth putting aside a spare hour to speak with an insurance broker.

For the sake of a few hours of your time, and a relatively small financial outlay if you choose to take out cover, you can go a long way to protecting your new business and giving it a better chance of survival.