There are a lot of expenses tied to starting your own business. For most people, these are paid for out of savings, home equity, retirement accounts, etc. Keeping these cost under control is paramount to business survival, and while some cannot be manipulated, others can be reduced with a little planning and forethought. Insurance is one expense that can vary according to certain factors.
The key here is to understand how insurance companies determine premiums. The Insurance Information Institute (www.iii.org) has some good advice for every fledgling entrepreneur regarding these factors. Here is a condensed version:
Type of business — How is the business legally structured? Are you a sole proprietor or an incorporated or limited liability company (LLC)? The less you are personally liable for the better.
Location, location, location — Businesses located in high-crime areas, or in areas that are susceptible to severe weather, such as flooding or tornadoes, will pay higher rates. If you have a choice as to where to locate your business, ask your agent for several quotes for the different locations you’re considering.
Facility size and characteristics – The larger the building, the more it will cost to insure. The building material and age of the wiring, plumbing, roof, etc. is also a consideration. State-of-the-art fire alarms, sprinkler systems and proper exits can save you money.
The value of the business — When applying for Business Interruption Insurance (BI), which covers lost net profits and continuing expenses after a catastrophe, the amount of coverage and, therefore, the premium costs will be based on your estimate of the company’s future revenues and expenses.
Number and training of employees — The more workers, the higher your workers compensation premiums will be. However, providing proper job training and safety rules can help reduce the insurance costs—in many cases, a well-trained worker is less likely to have an accident.
Take some time to talk with your insurance professional about how you can mitigate certain factors that can drive up the cost of insurance. They can help you figure out ways to bring your premium down while maintaining the coverages you need.