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Licensing and Insurance
Depending on what type of small business you’re opening, you may need a license or permit. Licenses and permits are used to make sure that you have met the educational and professional standards for your industry.
Having the proper licensing also protects you and your business. If an accident happens and you don’t have the proper license, you can be sued, your business can be shut down, you could pay a fine, and you can even be sent to jail.
How Do I Get Licensed?
There is no simple answer to this question. Every state is different. Some cities require barbers to have a license, while many do not. The best way to find out if you need proper licensing would be to contact your state, city and county governments and have them direct you to the right agency. Determining whether or not you need a license may take some time and research, but doing so could save you a lot of money and trouble.
Insurance
Insurance is just as important as licensing. Having the proper insurance policy protects you against lawsuits, accidents, natural disasters, and more. Sit down and talk with your insurance agent to develop a plan that works for your budget. These are the different types of business insurance:
- Property Insurance: Insures against loss or damage to the location of the business and its contents. It can also cover the property of others if it is under your control when it is damaged. Property insurance can be for a specific risk. For example, a fire insurance policy insures only against loss due to a fire. It would not cover loss due to something else like a tornado or flood.
- Casualty Insurance: The definition of casualty insurance is different in each state. Some states consider certain types of property insurance, (for example, crime, machinery and glass insurance) while other states classify liability insurance as casualty insurance. Some insurers will lump property and casualty insurance together and refer to the coverage as “property and casualty” insurance. Packaged policies of property and casualty are often the best purchase a business owner can make.
- General Liability Insurance: Liability insurance insures against damage caused by you or your employees due to negligence.
- Professional Liability Insurance: Business owners providing services should consider having professional liability insurance (also known as errors and omissions insurance). This type of liability coverage protects your business against malpractice, errors, and negligence in provision of services to your customers. Certain professions, such as doctors and lawyers, are legally required to have this type of insurance.
- Product Liability Insurance: Companies that manufacture, wholesale, distribute, and sell a product may be liable for its safety. Product liability insurance protects against financial loss as a result of a defective product that causes injury or bodily harm.
- Commercial Auto: Your personal automobile policy does NOT cover vehicles used by your business. If your business uses vehicles or anything that is required to be titled by your state, then you need a commercial auto policy. Commercial auto coverage insures against property damage to vehicles and damage caused to others by those vehicles.
- Workers’ Compensation and State Specific Insurance for Employee Injuries (e.g., Stop-Gap): You will need to insure your employees against on-the-job injuries. Every state is different. But, most states have put into place some form of workers’ compensation system. Workers’ compensation is a system where the employee is not allowed to sue their employer for on-the-job injuries, but the employer must participate in a system that provides nearly automatic payment to the employee in case of injury for medical bills and damages. There are many options for workers’ compensation coverage. Some states allow an employer to opt-out of the system if the employer is self insured, some run the system through private insurers while others use state agencies. Some states require additional insurance above workers’ compensation.
- Business Interruption Insurance: Insures against loss or damage to the cash flow and profit of a business caused by the business being unable to operate because of interruption. If something out of your control, like a critical piece of equipment breaking, were to happen this insurance would pay you the profit you would have made while that equipment is down.
- Health Insurance: To be competitive, most businesses need to offer their workers health insurance. This insurance offers a health coverage benefit to your employees (and you).
- Life and Disability: Life and disability insurance protects the business against the death or disability of key employees. The idea is to financially compensate you for the loss of that employee.
- Other Insurance or “Scripted” Policies: It could very well be that your business is so unique to have need for coverage that is a mixture of some of the coverage listed above or something written specifically for your particular risk. It is common for actors, actresses, or sports stars to have body parts such as legs insured. This would be an example of a scripted policy.
- Home Based Business Insurance: Homeowners' insurance policies do not generally cover home-based business losses. Depending on risks to your business, you may add riders to your homeowners' policy to cover normal business risks such as property damage. However, homeowners policies only go so far in covering home-based businesses and you may need to purchase additional policies to cover other risks, such as general and professional liability.
