By Ryan Hanley
As a business owner, you need insurance to keep your company operational. Did you know that insurance also drives your relationships with stakeholders? That's right, because without insurance, your business and its stakeholders are at risk.
To better understand how insurance can help a small business, let's first take a look at some of the risks that affect businesses worldwide. The top-ranked risks for businesses in 2016, according to the Allianz Risk Barometer, include:
- Business interruption (38 percent)
- Market volatility and stagnation (34 percent)
- Cyber incidents (28 percent)
- Natural catastrophes (24 percent)
- Changes in legislation/regulations (24 percent)
Clearly, your business can be disrupted in a number of ways due to factors that may or may not be under your control.
In addition, there are numerous “hidden” risks (i.e., risks that you might not consider when you search for stakeholders to invest in your business) that could put your company in danger. Business owners sometimes ignore or simply don't think about employee theft, professional mistakes, or other hidden dangers. Yet these risks could cause your business to lose money or force it to shut down.
Fortunately, insurance is available to protect your company and its stakeholders against risk. If you get the right insurance, your business can minimize risk as well as build trust with stakeholders.
How Does Insurance Drive Banking?
Insurance typically drives banking, and vice versa, and may help your business improve its chances of survival. If you insure your business properly, you could bolster your chances of securing the financing your business needs, as well as protect stakeholders' investments in your company.
Now, let's consider your credit score and how it may impact your financing and insurance options. Your credit score is based on several financial factors, including:
- Payment history
- Outstanding debt
- Age of credit history
- New credit/inquiries
- Combination of accounts/types of credit
If you fail to pay your bills on time consistently or have maxed out all of your credit cards, your credit score will plummet. However, if you make on-time payments and have no outstanding debt, your credit score will increase.
A bank will use your credit score to determine how much financing it will give your business, along with the interest rate for your loan. A financial institution may even require you to purchase certain types of insurance before it approves your loan request to further protect itself against financial loss.
Did you know that federal regulations allow insurance companies to review your credit report without your approval? This means that if you've missed credit card payments or have outstanding debt, insurance companies may notice, which could affect your insurance rates.
For business owners who want to generate interest from investors, having insurance is paramount because it protects a company-along with stakeholders' investments-against unforeseen risks.
Property Insurance Alone Is Insufficient–Here's Why
If a hair stylist makes a mistake dying a client's hair or a mechanic fails to connect a lug nut properly on a client's car, the resulting problems could be disastrous for a business. Property insurance will not protect your company against these kinds of mistakes; you will need to find the right insurance to guarantee you and your stakeholders are protected against these potential headaches.
To build trust with your stakeholders, you need to show that your company is protected against risk (i.e., show that your business represents a “viable” investment). If one of your employees makes a mistake, your business is destroyed in a fire, or other potential problems arise, insurance guarantees your company is protected. Furthermore, insurance safeguards your stakeholders–the investors who support your business by buying your products and services, or giving you the financing you need to run your company.
Without insurance, minor problems could result in catastrophic losses for both you and your stakeholders. Conversely, if you fully insure your business against potential problems, you are protecting your investment in your company and showing your stakeholders that you're committed to doing everything possible to safeguard their investments in your business.
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