So you’ve taken the leap into starting your own business. You defined your business opportunities, raised the needed capital, and are ready to start. After that, the biggest challenge is often finding the time, energy, and resources to fulfill your business plan. It’s also important to consider employee-related and other insurable risks that can make or break your startup.
- Consider how many people you will need and in what time frame. This helps define your HR, technology, and payroll needs. It also determines services and insurance products you may need. You want to consider health, life, and other employee benefits, as well as property, casualty, and liability insurance.
- Find a strategic advisor to help plan for these challenges. I suggest picking an advisor who doesn’t have a particular product to sell but rather has experience working with startups and the different insurance and HR platforms. These platforms are critical during the early business development of a startup.
Choose an advisor who can grow with you. Too often we see startups quickly outgrow their advisors and other business partners.
- Consider using a Professional Employer Organization (PEO) to take on HR tasks like payroll, benefits, and employee onboarding. A PEO can also help get your company quickly rolling, so you can focus your time and resources on serving clients rather than building and staffing an HR infrastructure. Select your PEO carefully. Large ones are relatively easy to set up, but they may not give you the one-on-one service levels you want. Remember, you are not just looking for tactical services like payroll and electronic onboarding; you want their expertise to help you build great people and effective teams. If you choose a smaller PEO, be sure to look at their accreditation. For example, the Employer Services Assurance Corporation certifies that your PEO has demonstrated financial stability, ethical business conduct, and adherence to operational standards and regulations. The IRS also has a Voluntary Certification Program for Professional Employer Organizations, and the American Institute of Certified Public Accountants promotes an audit of System and Organizational Controls (SOC).For most companies with less than 50 employees, buying health insurance on the open market is very expensive. A PEO can bring significant buying power for core employee benefits, workers comp, and professional liability needs. But be sure to check out the size and rate history of the PEO’s health care plan and make sure it’s being run responsibly.
- Insure your most important asset – yourself and key employees! The No. 1 mistake small startups make is failing to insure the founder or CEO. Business interruption insurance can help with just that. This includes:
- Keyman term life insurance, which can help care for the business and your family in the case of your death.
- Disability buyout insurance, which provides a lump sum, allowing partners or investors to buy out a disabled partner or owner.
- Disability business interruption insurance, which provides income replacement. This allows the business to hire a professional manager to replace the services of the key owner or executive leader.
I saw this type of protection work well several years ago: The CEO and owner of a successful commercial art gallery was diagnosed with cancer. With disability overhead expense insurance, she was able to hire a president to run the operations while she advised them. Upon her death, the keyman life insurance paid back her siblings, who had an ownership interest, with the rest going to her estate to protect her family.
- Consider whether a Business Owners Package (BOP) is right for you. BOPs bundle a variety of coverage lines for small businesses. They typically include property, vehicle, professional liability, and errors and omissions coverage. If you feel that’s the way to go, you should still talk with your advisor about any business-specific risks that might not be covered by these generic packages. Depending on what you do and how you do it, you may need specialized policies to cover gaps in a standard BOP.
- Don’t forget cyber insurance. Cyber fraud can bring a startup to its knees, compromising private information you are collecting. This subjects you to various fines and reparation costs. It can also take down your systems, leading to major business interruption. Most cyber-attacks are inadequately covered by standard property or crime policies. Your broker or advisor can help you determine whether you need special coverage and how much.
One last bit of advice — Always read the fine print. Each startup is unique, and so are its risks.
By Jim Clay, VP, Strategic Benefits Consultant, The Miller Group