Business Growth and Insurance
Planning on growing your business in 2025? See how insurance factors into this growth
New Year! New Potential! New Growth!
Like many business owners right now, I’m sure your sights are high anticipating the potential growth your business could have this year. You’re exploring different revenue streams and avenues to acquire more customers while expanding your operations to new areas or sectors. We love to watch our small business owners reach new levels of growth and prosperity, and see their potential fulfilled. That luster in their eyes quickly disappears when we tell them their insurance premium has gone up because of their successful year. It rarely crosses our customers’ minds that insurance rates correlate with business growth and scope.
Calculating premium for business insurance is from two main sources: payroll/revenue and scope of work.
Having either of these two things inaccurate can make your insurance premium swing wildly.
There is always some numerical factor (sometimes called the “basis”) that the insurance premium is based on which will allow you to anticipate the premium during the policy term. That rate (a multiple or % of the basis which results in the premium) won’t change during the period but the basis can. The basis can be the number of units (like apartments), revenue (gross revenue usually), costs (like subcontractor cost), payroll (1099 & W2), or area (square footage). If you know your basis and the current term’s rate, you can usually anticipate the premium. The rate is usually correlated with your line of work and the risk levels associated with your work.
Insurance for New Business Owners
When we talk to someone who is starting a new business, one of the challenges is projecting future revenue and expenses such as payroll and subcontractor costs for the coming year. It can also be challenging for new businesses to anticipate all the services they may offer. Many have a good grasp of this, but some have the good misfortune of wildly underestimating these figures. Please know that if you have more success than you anticipated, your insurance premium will need to account for this.
Insurance for Established Business Owners
Once a business has had a year under its belt, they can better anticipate how much payroll they’ll have along with what type of work they’ll be doing. If you add people to your crew or add different services than what you previously told the insurance company, they will most likely hit you with an audit bill. Some business owners pivot to different products or services when they find these have a better margin or there’s more demand. If you stay in your industry, this usually won’t be a big deal but be sure to ask your insurance agent if you’re making big changes. A landscaping company that is now venturing into tree trimming and hardscaping will be classified differently with an insurance company and so the price will be different. If you don’t update your policy with these new services, you’ll either be hit with an audit bill, your policy will need to be rewritten or cancelled, or in a worst-case potential, claims will be denied.
When a Business Need Additional Types of Coverage
Most companies start off with basic insurance coverage like Liability and Workers’ Comp. These policies cover your customers, products/services, and your employees. Once your business expands, so should your coverages. If we took a furniture store as an example, they would most likely start with general liability and workers’ comp; but
If you start delivering that furniture, you will need new coverages not covered by your GL or Property, such as:
- Commercial Auto – damage to your vehicles, employees’ vehicles, liability for car accidents, etc
- Cargo – damage during transport to inventory you don’t own, such as on consignment
- Inland Marine – damage to your inventory during transport or away from the business location
If you start manufacturing furniture as well:
- Professional Liability – for design flaws
- Workers Comp – likely must be rewritten or change to basis
If you start supplying hotel chains
- Umbrella – damage allegedly caused by you, your staff, or your furniture to higher-value or higher-frequency locations
if you add interior decorating services
- Professional Liability – for financial harm because of your advice
- general liability – likely must be completely rewritten to allow for subcontractors and basis change
If contemplating ownership changes or
- Life Insurance – to buy out your ownership stake in the business and ensure operations continue
If you want to construct a new warehouse or add onto or update an existing building
- Builders Risk – physical damage to the new structure while under construction or remodel
Some policies can breathe and flex to accommodate changes, others can’t, and a new insurance company found. It’s important to work with your insurance agent to know how to manage each policy and the overall risk of your small business. Luckly, we have some of the most experienced commercial insurance agents in the Destin and Fort Walton Area. They can let you know what coverage you need now and ten years down the road. Give us a call at 850-244-1574 or visit our website to find out more www.norton-insurance.com.