Starting a small business is an exciting journey fueled by innovation and ambition. However, with growth comes risk. Canada is home to approximately 1.19 million small businesses, according to the Small Business Branch of Economic Development Canada, and each one faces unique challenges. Being prepared for unforeseen events is crucial to long-term success. Here are some key considerations to help protect your business from potential risks.
Choosing the Right Business Structure
Your business structure plays a vital role in risk management. While many entrepreneurs start with a sole proprietorship, this setup may not be ideal as the business expands. Periodically reassessing your business entity can help minimize risks and ensure legal and financial protection.
There are several business structures to consider, including partnerships, corporations, and Canadian-controlled private corporations. Each has its advantages and disadvantages, depending on your specific circumstances. Selecting the right structure can help create a legal separation between your personal and business assets, which is essential for liability protection. Consulting with an attorney can help you determine the best fit for your business.
Safeguarding Personal Assets
As a business owner, it’s important to protect your personal assets from potential legal and financial risks. While no one anticipates a lawsuit, it’s wise to plan ahead.
Consider placing investments in a trust or holding assets in the name of a spouse or child. Additionally, maintain separate bank accounts for personal and business expenses to ensure financial clarity and protection.
Managing Business and Personal Credit
Your personal and business credit may be closely linked, depending on your business structure. Certain entity types, such as corporations, can help shield personal credit from business liabilities. However, some business loans and credit lines require a personal guarantee, meaning you could be held personally responsible for business debts.
Monitoring both your personal and business credit scores can help you maintain financial stability and avoid potential pitfalls.
The Importance of Business Insurance
Insurance is a critical component of protecting your business. One essential coverage option is a Business Owners Policy (BOP), which typically includes:
- Business Property Insurance – Covers your business location, tools, equipment, and inventory.
- General Liability Insurance – Protects against property damage, bodily injury, and advertising claims.
- Business Income (Interruption) Insurance – Helps replace lost income if you’re unable to operate due to a covered event, such as a fire or theft.
Considering Professional Liability Insurance
Professional liability insurance isn’t just for doctors, lawyers, and accountants. Anyone offering specialized skills or services, such as hairstylists and event planners, could face lawsuits alleging malpractice or negligence.
If you expand your business into a new industry, consult with your insurance broker to ensure your existing policy covers your new operations.
Preparing for Business Interruptions
Unforeseen events like fires, floods, and natural disasters can bring business operations to a standstill. Business Interruption Insurance helps cover lost income and expenses during these disruptions.
Standard business interruption coverage may not include certain disasters, such as floods or sewer backups. To avoid costly damages, speak with your insurance professional about adding specific coverages to your policy. Just a few inches of water can cause significant financial loss.
When determining coverage limits, use your business’s annual gross earnings as a guide.
Stay Ahead of Risks
Your business’s future success depends on proactive risk management. Regularly assessing your risks and updating your insurance coverage can help ensure stability and growth. To discuss the right protection for your business, contact Bulger Insurance today and speak with one of our experienced brokers.
