All businesses start as an idea—usually a great idea.
Soon that vision takes shape and becomes a reality. This new business has employees and payroll, office buildings and office furnishings. It also has influence, capital and assets—all of which expose the company to a certain amount of risk.
In order for a young company to realize its full potential, this risk needs to be managed effectively. With this in mind, the following are some guidelines that might be helpful when considering how best to protect your young company from the challenges it might face.
Property and Casualty Insurance
There are four to six basic insurance policies that every company should have. Please note that your business might require other lines of coverage depending on your company’s industry.
COMMERCIAL PROPERTY INSURANCE Provides protection to covered property in the event of loss such as fire, theft and weather damage.
GENERAL LIABILITY Protects your business should injury or property damage occur as a result of your business’s operations.
WORKERS’ COMPENSATION Provides wage replacement and medical benefits for employees injured in the course of employment.
UMBRELLA or excess Umbrella or excess insurance increases your liability limit in the event of a major claim or lawsuit. Umbrella coverage and excess coverage are very similar in nature, but also have distinct differences between the coverage forms.
COMMERCIAL AUTO In its simplest form, commercial auto covers your business’s company-owned automobiles. Vehicles covered must be titled in the company name and can include cars, vans, trucks, trailers—basically anything with wheels. These policy coverages could include liability, comprehensive, collision and medical payment. Additional coverages may also be added.
EMPLOYMENT PRACTICES LIABILITY Provides coverage to employers against claims made by employees alleging wrongful termination, harassment, discrimination, etc. This coverage is crucial, but is often overlooked.
Employee Benefits
As the business grows, it will probably need to begin building an employee benefits program in order to reward and protect employees, and aid in attracting talented new ones. This program most often begins with a group health insurance plan.
Prepare for serious initial sticker-shock. Group health insurance is expensive, especially for those companies just starting out and barely able to make ends meet. Many new businesses take one look at the numbers and decide they can’t afford to cover the cost.
However, all hope is not lost. First of all, employer contributions to group health plans are tax-deductible. In addition, a small business health care tax credit might be available to help subsidize the expense of offering a group health plan.
There are certain requirements necessary to be considered eligible for the tax credit:
- You must cover at least 50 percent of the cost of the plan’s employee-only portion for each eligible employee.
- You must have fewer than 25 full-time equivalent employees (FTEs). For a detailed definition of FTEs, please consult with your broker.
- Those employees must have an average wage of less than $50,000 per year.
Assuming your company meets the requirements, your small business could receive a tax credit of as much as 50 percent of what you paid in premiums.
Let’s look at the fictional ABC Construction Company as an example. It has 15 employees, who make a total of $300,000 or an average of $20,000 per employee. ABC’s employee health plan costs $80,000, and it could qualify for a 2014 tax credit of $40,000.
As a small business owner, you know how important it is to prioritize. Properly insure your company first. At that point, if you think it’s the right move, focus on building out an employee benefits package to attract employees who will help grow your company. And be sure to utilize a qualified insurance broker.
