Are you an entrepreneur? Insurance matters!
Congratulations! You’ve taken an exciting step forward by deciding to start your own business. It’s a challenging path, but with dedication, the right knowledge and skills and a lot of hard work, you will get there!
There are a lot of things to consider when you’re starting your own business, not the least of which is insurance. Most entrepreneurs do their best to keep their startup costs to an absolute minimum, and this makes complete sense. If you borrowed money or were backed by investors, you need to make sure that every dollar is being put to its best possible use. You must justify every purchase and think strategically about your spending. When it comes to insurance, a lot of entrepreneurs make the dangerous decision to wait and purchase coverage once their business has stabilized and is generating a steady profit. The problem with this approach is that insurance is more than an optional operating cost of your business, it’s essential. Without it, your business might be forced into bankruptcy before it ever gets going. A plan for insurance coverage should be laid out in your business plan. Budgeting for it will make it much easier to manage as you begin spending capital.
What kind of insurance do I need?
The type of insurance coverage that you need will vary depending on factors like what industry you work in, where you are located, how many employees you have, etc. As an entrepreneur, you should consider coverage options like: general liability, business property and workers compensation.. Again, your particular field of business may also require more specific types of coverage for particular at-risk areas. You should always be aware of the risks that are inherent in your sector before you launch a business.
Corporation vs. Sole Proprietorship
There’s also a big difference in the liability issues that can arise in a corporation compared a sole proprietorship. What’s the difference? A sole proprietorship is owned and operated by one person. Essentially, this person performs all of the tasks of the business. Rather than incorporating to create a separate entity that is the business, they include the business finances on their own personal tax return. This means that they have complete ownership of the funds, but it means that they also personally accept any liability that arises while they are doing business.
A corporation is the opposite. A corporate tax return must be filed, and – most importantly – it is the corporation this is held liable when something happens, not the businesses owner personally. Because it is easier and more cost-effective for very small businesses, most freelancers simply run as a sole proprietorship. Freelancers are still entrepreneurs, and yes they should carry insurance. A freelancer can purchase additional person liability insurance in most situations, and some specialized coverage options are available to freelancers and other sole proprietorship owners. Coverage for an individual is usually affordable and easy to obtain.
