There are nearly 30 million small businesses in the U.S., which means millions of Americans have foregone traditional employment to live out their dreams of entrepreneurship.
Forging your own path is exciting, but there can be risks inherent in running a business. These include lawsuits that can result from worker injuries or accidents at your place of business (for example, if a customer slips at your restaurant and injures themselves), business disputes (between you and a business partner, say, or with a third-party vendor over payment), claims of wrongful termination and more.
Even if you've prepared for years, there's no way to predict every obstacle you might face, or to guarantee success. That's why there are various types of small business insurance, which can help protect yourself and your business from common entrepreneurial issues, leaving you with more energy and attention for pursuing the actual work you love. If you're not sure what you may need, however, it can help to learn the most common types of insurance available.
Before you purchase insurance, you may also want to do a risk evaluation or consider consulting a financial professional. Some risks, like those we've outlined above, are common regardless of your trade. Others may be particular to your industry, like worker's compensation claims in a construction company or cybersecurity breaches in a software company. What follows are types of small business insurance meant to help protect against some of the most common small business issues.
Key Person Insurance
Key person insurance helps protect your business in the event you or one of your key employees dies or becomes unexpectedly ill or disabled. As a business owner, you can take out a policy on a key person with your business as the beneficiary. If something ever happens to trigger the policy, your company receives the insurance benefit.
The loss of a key employee can lead to cash-flow issues, resources diverted to hire and train someone to replace the key employee, and even business disputes related to succession planning. Key person insurance can help protect against potential fallout from these situations and provide the money your business may need to continue operating.
Pension Risk Transfers
With regulatory and market changes, pension plan obligations can sometimes exceed what you or your plan sponsor had prepared for, leading to financial issues that may impact the business's long-term growth and sustainability. This is where pension risk transfers can help. These insurance policies allow companies to replace pension benefits (which are paid to plan participants) with insurer-covered annuity payments.
Pension risk transfers can help protect your business from market volatility and changes in regulation that can affect your pension costs and the amount you may have to pay out to employees. You can in turn maintain greater control over your company's balance sheet and better prepare to meet your future financial obligations.
Business Transfer Agreements
As a small business owner, you'll likely want to have a succession plan in place in order to help ensure long-term business continuity. When it comes to making sure your business lives on when you retire — or if you were to unexpectedly become disabled or pass away — a business transfer agreement can form an essential part of your overall succession plan.
A business transfer agreement outlines the terms of the sale of your business to a family member, key employee or third party you've chosen as your successor, or as the business's new owner. The agreement will detail the fair market value or purchase price of the business, along with its assets. Such an agreement can also help minimize potential conflicts about who should run the business in your absence. As a business owner, you'll want to protect your legacy — and this often requires planning for the future today. A business transfer agreement offers a tool to help preempt future obstacles in the way of your business's longevity.
Preparing for the Unexpected
Becoming an entrepreneur can be a huge challenge — but also a rewarding one — meaning it's important to help manage your risks. Whether through key person insurance, pension risk transfers or a business transfer agreement, taking precautions now can help increase the likelihood your business will live on well into the future.