Sherry Ford Director of Business Insurance View Bio

5 Unexpected Costs for a Small Business and How to Avoid Them

As a small business owner, you’re constantly seeking ways to reduce expenses and build security into your business plan. The following five costs can spring up unexpectedly but proactive management and effective small business insurance can help you safely head them off.

Small Business Construction Issues

If you’re building or renovating business space, you are vulnerable to unexpected costs during the course of construction. Some problems, such as outdated wiring or substandard plumbing, may not be visible until a wall is torn out and then suddenly the bottom line shoots skyward. You can avoid some surprises by employing a savvy building inspector before you decide on a site, and it’s also wise to include an extra 25 percent in your budget to cover construction overruns.  You should be using insured contractors, written contracts that transfer liability where appropriate, and before work starts, require a Certificate of Insurance from all contractors/subcontractors as evidence of coverage (including contractual requirements) in force.

Frivolous Lawsuits for Small Businesses

Unfortunately, small businesses are prime targets for frivolous lawsuits, and many baseless claims still result in settlements because the independent business owners can’t afford to contest the lawsuits. Nationwide, the cost of such settlements reaches $35.6 billion annually. The best way to protect yourself is to establish a relationship with a good lawyer and make sure you’re adequately insured to cover legal costs. If you become aware of an incident that could potentially result in a claim against you, report it to your insurance agent immediately, with as many details as possible.

Small Business Shrinkage

Many small business owners consider themselves safe from this cost, since they have full faith that their employees aren’t going to engage in theft. Trusting your employees is essential but they are not the only source of potential loss. Total shrinkage among the nation’s retailers was $34.5 billion in 2011, and the majority of that was the result of shoplifting, paperwork mistakes and supplier problems. You can’t entirely eliminate this risk but an effective inventory management system will provide you with real-time data on products, tools and materials. Talk to your agent about various crime coverage options.

Late Payments

As a small business owner, you don’t have a huge cushion with which to carry accounts receivable. A net-30 policy is often inappropriate for small businesses; don’t be afraid to set up a shorter payment window, and offer incentives for paying even sooner. Clear communication with your customers often heads off the problem as well.

Small Business Cybercrime

According to CNN Money, small businesses are now the prime targets of cyberattacks. The Federation of Small Businesses reports that half of its members were victimized by cybercrime in 2013. Having the proper insurance coverage can help mitigate your cybersecurity risks. Lawley’s specialized cyber security insurance team can help you identify your risks and get you the protection you need. Lawley also has a dedicated small business team that specializes in insurance and employee benefits to help protect your needs.

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