Here’s a general rule of thumb for determining whether your small business is big enough to insure: Would it take you more than a month to rebuild everything from the ground up if your whole business sank right now?
When it comes to businesses that don’t need protecting, we’re talking about companies like software developers comprised of one or two guys on laptops, or garage-space offices you only work in on weekends. Essentially it comes down to whether or not you’ve invested too much to lose into your business.
Some businesses really don’t need much protection. If you are, say, a freelance programmer filing your taxes as a corporation, the worst thing that will usually happen is you forget to back up a day’s worth of coding. Feel free to insure your laptop, but don’t lose sleep over it if you choose not to.
Now, there’s a catch here: Even if your business doesn’t have any assets, that doesn’t mean you have “nothing to lose.” You might not need to protect your business, but you do need to cover yourself against issues of liability, as well as whatever risks come with the terrain in your industry. If you’re running a blog, for instance, you may need to make sure you have a lawyer you can call if someone brings libel charges against you. If you’re recording music in a basement studio, you may need to be concerned with copyright issues. The kind of people who might sue you don’t typically care whether you’re paying them from your personal account or your business account, just so long as the check gets signed.
You could say that there are two stages to getting insured as you build a business:
Protecting Yourself
As soon as you have any sort of office space where someone can slip and fall, you’re going to want to start looking into liability insurance. From there you’ll need to step it up policy-by-policy as you get your foothold into the industry.
Protecting Your Business
Once you’ve built something big enough to lose, you’re going to need to start protecting the business itself.
In addition to insurance, you’re also going to want to seek legal counsel to protect yourself in case you get sued (and to keep from getting sued in the first place). If all of this sounds a little expensive, the good news is that your business won’t need too much protecting until you can afford it. In the meantime, protect yourself. You don’t need a slip-and-fall killing your business before it’s even been built.
