The Importance of Insurance for Risk Management New Businesses
Entrepreneurs at new businesses often have a number of responsibilities on their shoulders. They are charged with hiring new employees, identifying and selling their products or services to new customers, finding sources of financial backing, looking for workspaces that can accommodate their needs and many other tasks.
As such, it’s no secret that small and nascent companies often have difficulty with risk management. This is especially the case if entrepreneurs happen to be young, such as Facebook founder Mark Zuckerberg, who found his college venture blowing up into a global phenomenon within just a few years. Young people tend to be even more unaware of business risks due to their lack of experience, which can make the prospect of keeping a company safe even more complicated.
As Risk Management Monitor noted, there are a lot of obvious risks for any new enterprise and business owners may be savvy enough to mitigate them. However, there are many more that may not be immediately obvious to entrepreneurs. Unfortunately, these are the threats that may take the heaviest toll on an organization. On top of some deft risk assessment and identification programs, young business owners may also want to consider purchasing insurance as a way to mitigate damage that these unforeseen threats can cause.
Lack of Insurance
Although it’s easy to perceive insurance as a cost, in reality, it’s probably one of the biggest value adds to any business. Devastating events such as natural disasters can single-handedly bring a business to its end, quickly and without any prior warning. Insurance can effectively minimize the damage cause by these unforeseen events, which in some instances can mean saving a company from having to close its doors – that’s a tremendous amount of value.
However, many small businesses and young companies are often underinsured. As NBC News notes, this is for two reasons: First, they may not have the capital to acquire all the insurance they need to cover their bases. Second, they are unaware of what they need to insure and don’t take stock of their insurance needs regularly, so their companies outgrow their coverage.
“One of the biggest lapses is in the area of business interruption insurance,” Clair Wilkinson, vice president at the Insurance Information Institute, explained to the news source. “This kind of coverage, which you might need to buy separately from a standard business insurance package, can be critical after a natural disaster, fire or power failure that shuts your business down. Business interruption insurance covers lost profits and operating expenses, such as salaries, that must still be paid even when a company can’t operate.”
The Perks of Insurance to Risk Management
For young businesses, insurance should be a crucial cornerstone in risk management programs because it brings so much to the table. Risk Management Monitor recently discussed some of the core benefits of risk management:
- Protection from financial loss – For young businesses, a multitude of things can go wrong, from natural disasters to theft and burglary. Insurance can be a key tool in preventing financial losses in the early stages of the game. When companies have small budgets, even having to buy a new laptop because a thief stole one from the office can be devastating.
- Better reputation – New businesses are always looking for financial support, whether it’s from angel investors or banks. Having insurance reflects well on the company and makes the owner look responsible, which can help secure that necessary loan or investment.
- Improve liability – General liability insurance protects entrepreneurs against unforeseen everyday threats, whether it’s someone slipping on their floors or getting their fingers jammed in the door on the way out. There are only so many things businesses can prepare for, liability insurance helps entrepreneurs prepare for the rest.
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