Tag Archives: resources

Does Your Small Business Really Need Insurance?

Today we will try to answer the question “Does Your Small Business Need Insurance?”

The short answer is YES.

If you don’t have business insurance you run the risk of losing more than your business. Without the right type of coverage, a fire, theft, accident, or lawsuit could destroy your business and may put your personal finances at risk.

Whether you are starting a business, taking on employees for the first time, or evolving your business structure, there are many variables that determine the right insurance for your small business. Insurance companies differ in the types of business operations they will cover under the various options they offer. So it’s wise to shop around for coverage options as well as price. 

Since there are such a wide variety of insurance policies available, always discuss your individual business insurance needs with an insurance agent or broker.

There are two fundamental types of insurance – commercial business insurance, which is not necessarily required by law, and employer insurance, which is. Caron Beesley, a small business owner, writer, and marketing communications consultant, complied this summary:

1. Types of Commercial Business Insurance

  • General Liability Insurance – This insurance broadly covers and provides protection against the legal hassles associated with accidents, injuries and claims of negligence.
  • Product Liability Insurance – If you manufacture, wholesale, distribute and retail a product, this insurance protects against financial loss as a result of a product defect that can cause injury.
  • Professional Liability Insurance – If you provide a service to a customer, this insurance can protect against malpractice, errors, and negligence in the provision of those services to your customers. Some state governments require certain professions (e.g. physicians) to carry such a policy.
  • Commercial Property Insurance – This covers everything related to the loss and damage of company property due to a wide variety of events such as fire, smoke, severe weather, vandalism, etc. The definition of ‘property’ is broad, and includes lost income, business interruption, buildings, computers, company papers and money. This is definitely one you should talk to an insurance expert about to understand your specific needs.

2. Insurance Requirements for Employers

If your small business hires employees, you are required by state law to pay for certain types of insurance. Here are the three key employee insurance requirements:

  • Workers Compensation Insurance – Businesses with employees are required to carry Workers’ Compensation Insurance coverage through a commercial carrier, on a self-insured basis, or through the state Workers’ Compensation Insurance program. Visit your state’s Workers’ Compensation Office for more information on your state’s program.
  • Unemployment Insurance Tax – If you have employees you are required to pay unemployment insurance taxes as determined by your state. First you’ll need to register your business with your state’s workforce agency. The State Taxes page on IRS.gov includes links to connect you with your state’s agency.
  • Disability Insurance – In the U.S., it is mandatory to purchase disability insurance only if your business is in one of six locations – California, Hawaii, New Jersey, New York, Puerto Rico and Rhode Island.

Next time we will look at “Five Tips for Buying Business Insurance” from the U.S. Small Business Administration (SBA).

Business Licenses and Permits, Oh My!

Don’t forget that any kind of business you start needs to comply with local, state, and federal regulations related to your business. Failing to do so is one of the most common mistakes new entrepreneurs make. Some of the issues regarding licenses and permits can be handled alone, but some may require the help of a lawyer.

Federal Requirements

Most businesses do not require a federal business license or permit. However, if your business is in one of the following highly regulated areas you should contact the responsible federal agency to determine the requirements for doing business:

  • Broadcasting
  • Drug manufacturing
  • Ground transportation
  • Investment advising
  • Preparing meat products
  • Selling tobacco, alcohol, or firearms

For more information see “Federal Licenses & Permits” on sba.gov

State Requirements

Many states and local jurisdictions require you to get a business license or permit before beginning any business activities. A business that operates without the required license or permit may be subjected to fines or may be barred from further business activity. In some localities, a business operating out of a residence may require an additional permit.

While business licensing requirements vary from state-to-state, the most common types include:

1. Basic Business Operation License – a legal document issued by a local governmental authority that authorizes a person to conduct business within the boundaries of the municipality. Many states have established small business assistance agencies to help small businesses comply with state requirements.

2. Fictitious Name Certificate – a document, usually filed with a state agency, which is required to operate a business using an assumed name or trade name (essentially, any name other than the full, formal name of the individual or company).

3. Home Occupation Permit – a permit that may be required to conduct business from a residence.

4. Tax Registration – if the state has a state income tax, a business owner must usually register and obtain an employer identification number from the state Department of Revenue or Treasury Department. If the business engages in retail sales, the owner must usually obtain a sales tax license.

5. Special State-Issued Business Licenses or Permits – these permits may be required for a business that sell highly regulated products like firearms, gasoline, liquor, or lottery tickets.

6. Zoning and Land Use Permits – may be required to develop a site or property for specific purposes.

7. Employer Registrations – if the business has employees, the owner must usually make unemployment insurance contributions.

In many states, people in certain occupations must have licenses or occupational permits. Often, they have to pass state exams before they can get these permits and conduct business. States usually require licensing for auto mechanics, plumbers, electricians, building contractors, collection agents, insurance agents, real estate brokers, repossessors, and anyone who provides personal services (i.e., barbers, cosmetologists, doctors and nurses). Contact your state government offices to get a complete list of occupations that require licensing.

For more information see:
State Licenses & Permits” on sba.gov;
Starting an Online Business: Licensing Requirements” on E-CommerceLaw.com; or
Business Licenses and Permits” on Entrepreneur.com

Local Requirements

Your local licensing requirements will vary. Some examples include the following:

  • You may need a zoning compliance permit before you can open for business. Make sure the space you own or lease is properly zoned for the specific type of business you select.
  • You may need a special license if you’re conducting business out of your house, a beauty salon for example.
  • Are you planning on remodeling your space? You may need to get a permit, so you will want to check the building codes first.

Where do you go to get a license?
The best place to start is your local city hall or courthouse. See the city clerk, who should be able to direct you. You can also phone the city or county clerk’s office with questions, or look in your local phone book under municipal government offices. Run an online search on Google or Yahoo to find the Web site for your local city hall.

For more information see “Business License & Permits” on myownbusiness.org

Please Note: To help you identify the specific licenses or permits your business may need, the SBA has a tool called Permit Me. Simply enter your zip code and business type to view a list of the licenses or permits you’ll need, together with information and links to the application process.

Business Plan Resources

The SBA’s (US Small Business AdministrationSmall Business Learning Center is full of amazing training files. It has online training courses, videos, and chats. I found the online course for How to Write a Business Plan to be extremely helpful.

SBA also has a series of business planning tutorial videos by Tim Berry.  Tim Berry is the Founder and Chairman of Palo Alto Software and bplans.com. He is the author of business plan software Business Plan Pro and www.liveplan.com and books including The Plan As You Go Business Plan, published by Entrepreneur Press, 2008.

Another item on SBA’s site that I like is Creating a Business Plan, which is found under Starting a Business in the Starting & Managing a Business section. There is a link to the SBA’s Build Your Business Plan tool – a step-by-step guide to help you create your business plan.

SCORE has some Templates and Tools that will serve you well. There are one or two, of course, related to Business Plans. For example, here are 5 Tips on Creating a Great Business Plan, brought to you by SCORE Mentors:

  • Take the long view and do long-term planning. Map out where you want to be five years from now and how you plan to get there.
  • Write the plan yourself. You will learn more about your business by doing so.
  • Think of your plan as a living document. Review it regularly to make sure you are on track or to adjust it to market changes.
  • Share the plan with others who can help you get where you want to go—such as lenders, key employees and advisors.
  • Understand that you might pay a price in the short run to obtain long-term business growth and health.

SCORE has a gallery of Business Plan Templates as well as templates of Financial Statements. They also have Online Workshops, such as Quick Start Business Plan.

Next time we will talk about how to obtain business licenses and permits.