6 Small Business Practices that Increase Liability Exposure
Taking on Unfamiliar Tasks
Sticking to the bread and butter of what your business does is always the best way to reduce risk as much as possible. In some instances, there is no way to not get out of your comfort zone and take on contracts outside of your employees comfort zone. This does not mean you should never take on a job that has new aspect you do not work with frequently. An example of this would be a landscaping company taking on tree work where some employees may have to work at height. Another example might be a construction company that is doing a remodel of an existing property when they primarily work on new home construction. Neither of these examples are out of the realm of possibility for your employees to take on, but each example brings on some risky business that you need to be aware of in order to eliminate all possible risk. When you do take on something out of your normal business operations, it is a good idea to call your insurance agent to make sure your business is insured properly. In some instances, these new activities may be excluded from your current policy.
Ignoring Regulations
Ignoring or not knowing regulations is risky business. It can get a small business in to a lot of hot water in more ways than one. It can cause an increase in the frequency and severity of insurance claims. This commonly results in a negative impact on the experience modification rating of the business, which impacts the rate of premium the business pays for all lines of commercial insurance. Ignoring regulations altogether is illegal and can result in fines or a complete stoppage of business. In some drastic instances it can result in the business license being pulled and the business have to close its doors. Knowing and following regulations is the responsibility of the business owner. Taking regulations seriously is important no matter what industry a business operates in.
Failing to Use Adequate Contracts
Contractual obligations are always the best way to interact with another business when doing work for them. It may be common practices in some areas and in some industries to work on a handshake deal, but without a legal document in place your business can be taking on an enormous amount of risk. Contracts can keep everyone within a business interaction on the same page and it can help resolve any disputes that come up. If a business owner does not feel comfortable writing up a legal document than they should enlist the help of a legal professional. It is very tempting to skimp on legal fees, (especially for start-ups) but in the legal profession you get what you pay for. Skimp on legal fees on the front end can be risky business. It may create an enormous cost to your business later when a contract does not go the way you intended.
Business Interruption
According to the Federal Emergency Management Agency (FEMA), ’40 percent of small businesses never reopen their doors following a disaster’. During the five year period from 2006-2010, the average commercial flood claim amounted to just over $85,000. If your business does not have the financial where with-all to withstand a financial loss than you need to secure adequate commercial insurance for small business. Not securing adequate coverage is risky business for any small business. Most insurance carriers carry specific packages for each industry called a Business Owner’s Package. Included in these packages should be Business Interruption Insurance. This type of insurance will compensate your business for lost income if you are forced to vacate the premises due to disaster-related damage that is covered under your property insurance policy. THe coverage may include the revenue you would have earned, based on your financial records, had the disaster not occurred. Having this policy or not can mean the difference between your business experiencing a bump in the road and the end of your business.
Employment Practices
Hiring and firing without knowing the rules and regulation within your state is a dangerous way to run a business. Employment Practices Liability Insurance (EPLI) Lawsuits have been on the rise for the better part of a decade. Most successful business owners understand their employees are the heart and soul that drives a company forward. Partnering with both a lawyer and a human resource professional is the best way to develop a process for how your business will hire, train, employ, and fire employees. There should be a plan in place for how to deal with your employees from the pre-employment process all the way through the day the employee leaves the organization.
Not Carrying Insurance
Not carrying enough insurance is a problem in and of itself, as is carrying the wrong insurance. In most cases not carrying insurance at all is illegal and puts your business in an enormously risky position. Regardless of whether you are a start-up or an existing business, it is risky business to go without some form of small business insurance. In most states and in most industries, it is legally required to carry General Liability and Workers Compensation Insurance. This is just the bare minimum coverage most businesses need. Partnering with an independent insurance agent is the best way to get unbiased information about what policy you definitely do need and what policies you may be able to do without.