As the owner of a small business, you have a huge responsibility. If something goes wrong—if an employee or contractor gets hurt in an accident, for instance—your business is legally liable. You need to know what to do, what to say and how to protect yourself from accidents.
You need competent representation in the event of a lawsuit. Have you set up your business so your individual assets are protected should you be sued?
Now that you own a business, you can’t just say anything that comes into your head. You need to think carefully and monitor your tongue, even if you believe what you’re thinking is completely justified. This also extends to individuals with whom you identify yourself. If they have poor reputations, your company may be connected to them, even if only in peoples’ minds.
How to Set Up Your Business
Once you start putting your ideas for a new business into practice, you may not be thinking beyond sole proprietorship. While this is one of the easiest ways to begin a company, it’s also one of the easiest to destroy.
The plaintiff in any lawsuit can win an award that includes your vehicle, home and everything else you own, including your business and equipment.
Even opening as a partnership is risky. This puts you and your partner or partners at the same risk that a sole proprietorship faces. Consider other business types.
A limited liability corporation or a corporation are two much stronger and safer business options. it’s more complex to form them and, at tax time, your accountant will have to do some pretty complicated calculations in completing your taxes—but they help to protect your personal assets should your business be sued by a contractor. If you’re thinking that business insurance will protect you, you’re right. But only partially. You’ll still be required to fork over a portion of your home equity. Depending on the size of any award given to your former contractor, you may or may not lose your vehicle and any other assets you own.
A limited liability corporation or LLC works to shield you personally from lawsuit awards. A corporation does the same. Should the worst happen and a contractor sues you, these two business types will be dissolved and the cash realized will be given to the contractor to satisfy your liability.
It doesn’t end with that valuable protection. Speak to a CPA or attorney to learn more about all the requirements and rules that you’ll be subject to, as a business owner. After all, don’t you want to be protected and, once a lawsuit has ended, still be able to provide for yourself, your family and your employees?
As you look through resumes, look only for the best people. You want someone who’s motivated to work hard not just for themselves, but also for your company. Repeat this for every employee you plan to hire.
Treat them with respect and consideration. Get their opinions about your business and use some of their best ideas. Give them proper credit when you’ve done so. Pay them at a rate that lets them know you value them.
Establish solid policies and procedures so your employees all know how you want your company to be run. By setting up an environment where clear, honest communication is the norm, everyone will know where they stand with you.
How to Insure Yourself
Use as much of your own money to begin your business. This decreases your obligations should your business fail. The money you provide for your new business should take care of your start-up costs—you won’t make a profit immediately. It will take you several months or even years to see this happen.
Meanwhile, those loan payments can become unmanageable if your business isn’t generating enough income to cover them.
Just as you use your own money to get started, do the same when you buy the different forms of insurance you need.
Educate yourself about all the types of insurance you need. Once you’ve done this, talk to several insurance companies to determine the best fit for your new business’ needs. As you consider whether to get a particular form of insurance you need or not, remember “liability, defense and coverage.” Each form provides protection and defense should anything bad happen. If you are sued by a contractor, just having insurance can mean the difference between keeping your doors open or closing your business.
What Types of Insurance to Get
Who knew that a small-business owner needed to carry so much insurance? The rationale is good. You’re providing a business or service that’s needed in your community. You want to protect everything in your business because it’s an asset for you. So that asset will stay open, be ready to buy these types of insurance:
Property insuranceYour building, equipment, business property, computers, tools and inventory are all covered under this type of policy. This insurance should protect you from vandalism, fire, smoke damage and theft. Ask about a rider for business interruption and loss of earning so your earnings won’t be lost if you’re not able to operate it after a theft or fire.
General liability insuranceLiability insurance covers you if your services or products are accused of causing property damage or bodily injury to someone else. Even if your business is home-based, you should hold general liability coverage.
Business owner’s policyThis provides all the required coverage you need. You’ll have business interruption coverage, vehicle coverage, property insurance, crime insurance and liability insurance. Buy a plan customized to your business’ needs. This is the one insurance that saves money for you. it’s bundled in such a way that the monthly premium is less than what you would pay for individual coverage under individual plans.
Commercial auto insuranceThis protects every one of your company vehicles—whether they carry equipment, employees or products. Your vehicles will be protected from collisions and damages. If you don’t use company vehicles, with your employees driving their own cars on company time, consider purchasing non-owned auto liability. This protects your company if one or more of your workers don’t have insurance, or if they don’t have enough coverage. This can be added to BOP coverage.
Worker’s compensationThis is one of the most important forms of insurance your company can hold. In short, it protects your business should your employees suffer an injury while on company time. They will receive medical benefits and wage replacement, which is provided at a percentage of what they normally earn. When your employee files a worker’s compensation claim, he is saying that he will not sue you. Every state in the country requires you to carry worker’s compensation if your employees are not independent contractors. If you fail to buy this coverage, your state will levy some pretty severe fines.
Professional Liability InsuranceThis is also called “Errors and Omissions Insurance.” It defends you and provides damages for not providing professional services correctly, or for failing to do so. General liability insurance doesn’t provide this coverage. Insurance companies, notaries, layers, consultants, accountants, real estate agents, technology providers and hair salons are professions most likely to be sued for professional liability.
Directors and Officers InsuranceThis is pretty direct. It covers officers and directors from any actions they take that affect the profitability or operations of your business. If one of your directors or officers finds themselves facing legal liabilities, this insurance can protect them from damages, as well as providing for their costs from a lawsuit.
Homeowner’s InsuranceYes, as a business owner, you should hold this. As well as covering against damage to items within your home, as well as damage to your home, it covers you from home accidents caused by your own actions.
Data BreachStorage of non-public information about your clients or employees on servers, computers or paper files means that you will protect that data. If your files (paper or electronic) are breached, this policy protects you from this loss.
Renter’s InsuranceThis is a subsection of homeowner’s insurance. Like homeowners, it protects your home from damage to the property, contents and injury to anyone in the home.
Personal Automobile CoverageThis is required by law in all fifty states and U.S. territories. It covers all road vehicles, including motorcycles. Along with bodily injury and physical damage, it also protects you from liability brought by others who are damaged or hurt in a collision.
Life InsuranceThis is more personal in nature, providing for peace of mind for family members after you have died. Knowing they won’t have to worry about your bills or funeral costs because your life insurance paid for them, they will be able to grieve your loss.
Personal Umbrella InsuranceThis provides additional protection that extends other forms of protection, giving additional coverage (homeowner’s or auto coverage, for instance). It goes into effect only when the liability on other policies you own has been used up.
How to Properly Hire and Work with Contractors
If you have decided how you’re going to get started, you may opt for hiring contractors at first. Independent contractors, freelancers or even “1099 workers” are not employees.
Because they aren’t your employees, you won’t have to worry about paying their employment insurance, FICA, federal tax, state tax or Medicare taxes every pay period. Your independent contractors will be 100 percent responsible for making these payments.
If you’re worried about being able to afford giving sick and annual leave, you won’t have to worry about this with independent contractors. Because they are in business for themselves, they decide when they will work and when they will take time off.
However, don’t forget that, if you hire an independent contractor, you’ll have to justify this to the Internal Revenue Service. Twenty factors should satisfy your concerns about “employee or independent contractor.”
- Will use their own methods to complete work, rather than using the methods you require.
- Will set his or her own hours and do the work the way they believe they can best get it done.
- Can assign others to do the job (subcontracting).
- Accepts the risk of earning a profit or not, from the work they do for you.
- Can have more than one client simultaneously.
- Can be hired for “one-off” jobs, discontinuing their relationship with your business once the work is done.
- Will work from home or another location of their choice, using their own equipment.
- Responsible for paying their own business and travel expenses, though you may voluntarily reimburse them later.
- Agrees to finish a specific job to your satisfaction.
- Paid on commission or per-project.