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Ensure you have a solid insurance plan to reduce risk

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Starting a business is a risky venture. Luckily, many pitfalls can be avoided with careful planning. Others can’t. As if marketing, payrolls, taxes and cash flow weren’t enough to worry about, business owners may encounter unforeseen legal claims, accidents and natural disasters. A good insurance plan is a vital component of mitigating risk.

Liability insurance
This insurance protects you against claims made by customers, employees, vendors and other people you come in contact with during the course of business. Virginia businesses are subject to negligence laws, which courts view as failure to provide a reasonable degree of care that is expected in a circumstance. This insurance will also protect you during claims of a person on your property.
Liability coverage includes legal costs to defend a claim of negligence, payments you may need to pay and any medical services resulting from an accident. Liability insurance also protects businesses from claims made by a person who is on your property.

Other necessary liability insurance depends on your type of business. If you have a company vehicle, you will need auto insurance. If you manufacture a product, you will need product liability coverage if it causes injury or damage to a user. If you provide professional services, you may need to obtain a professional liability policy.

Property insurance
This will cover your business property and its contents. Buildings, office furniture, computer equipment and inventory are all items you can not afford to lose. Property insurance can cover damage from theft, business interruption, vandalism and natural disasters.

Special-purpose insurance
The nature of your business may require special insurance, such as boiler and machinery insurance, credit insurance, fidelity insurance and surety bonds.

Workers’ Compensation Insurance
Virginia law requires employers with three or more employees to provide workers’ compensation coverage for accidents and occupational diseases. For more information, visit the Virginia Workers’ Compensation Commission Web site at http://www.vwc.virginia.gov

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Tip: When shopping for insurance, the best way to ensure optimum results is to unbundle the buying process. Separate the broker/agent decision from the insurance company decision. The first step is choosing a broker and the second is finding the best insurance plan.

Doing your own part to reduce risk
Business startups face a tough road. About 50 percent of new businesses fail within five years, according to the U.S. Small Business Administration. Entrepreneurs can reduce their risks of failure with careful planning. Following are some of the top reasons businesses fail, and tips on how to avoid failure.

Inexperience. Use available business groups, such as the Small Business Development Centers around the state, for guidance. They will help review your business plan and provide assistance in a number of ways.

Inadequate capital. Spend adequate time developing your business plan to ensure you have sought enough capital to run your business.

Poor cash flow. Business owners must be cognizant of when loans are due and how much cash is coming in. Many retailers must be mindful of this, when most receipts will come in at the end of the year but the company will to spend throughout.

Poor record keeping. Keep good records of employees, taxes, accounts receivable and inventory.

Misunderstanding of competition. The owner must do research on potential customers, know the competition, and price their products and services correctly. Misunderstanding in these areas can be disastrous for a startup.

There are many other difficulties that can lead to a business’ downfall, including a bad location, poor management, bad employees and rapid expansion. The key is to plan and turn to many of Virginia’s resources for help. See page BG28 for a list of good references.


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