What insurance does my small business need?

Insurance is crucial for small businesses as it provides valuable support for many potential negative impacts and can represent the difference between survival or closure in crucial times.

Small business owners are often highly vulnerable financially, especially if you have sunk your life’s savings into a venture or taken out a substantial loan.

The first step to protecting yourself is to identify what could cause a negative impact to your business, taking time to understand and identify your business risks.

Small businesses faced with barrage of options and decisions on how to operate, grow and work smartly in constantly changing cycles. The one thing you can count on is that your business and the challenges will constantly change. For that reason it’s important to look regularly at what might present a threat – at least once a year, and importantly, before you renew your insurance cover.

This information is intended to help demystify the insurance basics a small business can utilise for protection.

Key risks and small business insurance essentials

When thinking about what could negatively impact your business, it’s useful to start by identifying the things that you can control because you can take steps to prevent them or to limit their effects. This is worth doing as it can help reduce your insurance premiums if you can demonstrate risk mitigation measures.

The most common risks to small businesses include:

• cash flow issues

• employee management and mandatory protections

• loss of a key staff member

• liability for injury or damage

• regulations and compliance obligations

• cyber risks, scams and online risks

• fire and natural disasters

• theft

• breakdown of machinery or equipment 

• interruption to trading.

Cash flow is critical
Half of all Australian businesses fail in the first three years of operation, with poor cash flow as a factor in 40% of cases, according to insurance industry data, so money is a key concern. You can insure against theft, both external and by an employee, and if you are concerned with creditor payments you should also consider taking out trade credit cover against non-payment.

People who are indispensable
If you have a staff member who is critical to your operations you need a contingency plan to cover for them if they are unexpectedly unable to perform their job. Plus you can take out key person insurance that helps cover the costs involved with recruiting a replacement and employing a temporary replacement.

What happens if someone sues you?
If you provide consulting or design services or professional advice, or someone outside the business is injured or their property is damaged as a result of your business activities, they can bring a legal action against you. Errors made while providing services or advice is covered by professional indemnity insurance, and injury or damage by a public liability policy. Both pay expenses involved in answering a claim and may also help with reputational damage control costs.

Keeping up with regulatory changes
Small businesses are particularly concerned about changes to regulations and statutory requirements because adapting to them can involve disruptions to operations or, in worst case scenarios, penalties or fines for failures to meet them. Management liability insurance provides protection against the legal costs involved if you wind up on the wrong side of a compliance issue. Management liability also addresses legal action against you in your capacity as a director or manager of your business and staff employment issues such as unfair dismissal claims.

Technical business issues and cyber security
Increasingly prevalent attacks by cyber criminals can bring businesses of any size to a complete halt. Staying on top of technology safety with strong cyber security measures should be coupled with cyber insurance because hackers are coming up with new ways to steal money and information every day.

When disaster strikes
Catastrophes and extreme weather events are also increasing in frequency. In addition to risk reduction actions ensure your property damage cover is up to date and realistically provides for total replacement costs if your premises are destroyed. Don’t forget to factor in demolition and debris removal.

If you have to suspend business
Small businesses can understand all of the above risks and still overlook one of the biggest. Business income protection covers your business for running costs and wages for a nominated period if you’re forced to close under certain circumstances, giving you the resilience to bounce back.

Keep your wheels turning
Regular maintenance of your machinery or equipment is a given, but it’s wise to insure against your essential plant failing, which can also give you the ability to hire interim replacements to keep your business operating.

Don’t forget your people
Every team member is especially important to a small enterprise make sure you understand your workers’ compensation obligations and have the right cover for your permanent staff and casuals.

Written by Roz Shaw