Understanding the Need of Having Adequate Business Insurance Cover

Insurance is a means to protect the businesses from unforeseen risks; it provides peace of mind to the business owners. However, choosing adequate insurance cover is crucial to leverage the benefits it offers. This article sheds light on the negative impact of under or over insuring a business and the importance of having adequate insurance cover.

Under-insurance or over-insurance – impact
Besides determining various risks that your business is likely to face, you also need to calculate the amount required to cover the risk to determine adequate cover, failing which you may face the following issues -

• Revenue loss: Under-insurance may cost you dearly. The low premium may initially attract you, but it may lead to revenue losses when the risk arises. If any risk arises and your business is not covered with adequate insurance, it may affect your business financially, as you have paid for an insurance cover that is less than its value and you have to bear with the loss of revenue.

• Business interruption: Being under-insured may lead to business interruption, because, if your business is not covered with adequate insurance, you have to endure losses in case of physical property damage or liability claims. Until you spend some money from your pocket to re-build the business, you may not be able to run your business. Business interruption, thus, halts the revenue you are generating.

• High premium rates: Over-insurance results in paying high premium costs, for a coverage that goes beyond the actual cash value of the risk that was insured by the policy holder. If your business is over-insured, and you are paying high premium, which is actually not required, you will be in a loss.

Adequate insurance and its importance: Incidents such as accidents, natural calamities like storms, etc. can result in interruption/closure of your business. Having adequate insurance coverage is, therefore, very critical to protect your business from such kind of risk. Following are two more benefits of having adequate insurance -

• Smooth business operation: If your business is insured with adequate insurance coverage, you can operate your business smoothly. You need not worrying about the risks that may occur in your premises.

• Resume operations after unexpected events: After an unexpected event at your business premises, you need to rebuild your business to resume operations. At this critical time, having business insurance is very helpful; it will cover the loss incurred. It helps rebuild your business and resume operations.

Determining the insurance cover for your business
Before you purchase insurance for your business, it is important to calculate the total value of assets and costs required to repair/replace them when an unforeseen event happens. For this, take help of tools such as property value calculator, replacement cost estimator, etc. which enable you to determine the coverage required for your business. This way, you can avoid the instances of both under and over insurance.

Take expert advice
After knowing the importance of having adequate insurance for your business, purchasing it on your own can prove risky, as you may miss on a few things. Therefore, it is better to take advice of insurance brokers as they will help you in choosing adequate insurance coverage after looking at all the aspects of the business.

Your business may be thriving well; however it might face difficulties which you cannot foresee. Purchasing insurance that covers all the potential risks to your business adequately is, therefore, a sensible business idea.

The Different Ways To Start A Woodworking Business

Once you have decided to go into the woodworking business there are a number of different ways to proceed. If you are fortunate enough to have a woodworking shop that you have used as a hobby you can convert it to a woodworking company. If this is not the case you have other options available. You can start a woodworking business from scratch or you can buy an existing woodworking firm or you can purchase a franchise. All of these are viable options and we will take a look at the pros and cons of each. The one thing to remember is that going into business is not easy no matter which method you chose if it was everyone would do it. Hard work, dedication and sacrifice are all part of the entrepreneurs day-to-day existence. But take it from someone who has done it for himself the rewards far out way the hardships.

Starting a woodworking business from scratch is by far the most difficult but can also be the most rewarding because it is something that has personal stamp on it, something you have built from the ground up. The first thing you need to do and without a doubt the most important is to develop a detailed business plan. The SBA (small business administration) and all the banks that lend for them won’t even consider taking a loan application from someone who has not taken the time to create a proper business plan.

The first thing you need to do in the preparation of your business plan is to analyze yourself. You need to be honest with yourself and list your strengths and weaknesses paying special attention to your business experience. The next four steps work together. You need to choose a product. Are you going to make toys and birdhouses or are you going to produce fine wood furniture. This goes hand in hand with the next step which is to research your market. You need to research the market so that you can forecast sales revenues which will allow you to build pro forma financial statements. Armed with your market research you can then decide where you should locate your new woodworking business,after picking your site you can then develop a production and marketing plans. You will need to develop an organizational plan so as your woodworking business grows and you start to add employees there will be no confusion when it comes to who reports to who. This may not seem important when you are first starting out but becomes very important as you grow. Your business plan will also have to include a legal plan, insurance plan,accounting plan, quality management plan and an overall financial plan. By developing all the different steps in your business plan you can come up with an estimate of the financing that will be required to get your woodworking firm up and running. Remember eight out of ten start-ups fail in the first year. Proper planing helps you avoid a lot of the pitfalls and increases your chances of success.

Buying out an existing woodworking business is the next option. This option also requires that you prepare a business plan so you can make a honest evaluation of the different woodworking businesses you are considering. You are going to want to have your accountant review all financial statements to verify that the businesses you are considering are operating at a profit. It also gives you an idea of what the woodworking business is worth and what you may be willing to pay for it. There is never any guarantee of success, but the odds are better when buying out an existing business, because a successful woodworking company has proved it can draw customers at a profit, and they have established relationships with bankers and suppliers which can be very valuable. Weather building a woodworking business from scratch or buying an existing woodworking business a good business plan is a road-map to success.

Buying a franchise is the next option we will look at. A franchise is an agreement between the franchisee (buyer) and a franchisor (seller). It normally requires a lump sum payment upfront with a percentage of the monthly revenues paid to the franchisor. For this the franchisee gets a proven business model and help in marketing and advertising, employee management and training, shop design and equipment acquisition, site selection assistance and help with financing. The major drawback to franchising is that you are constrained by the franchisor’s policies, standards and procedures. in other words, there is a loss of independence that starting a woodworking business from scratch gives you.

The last option is turning your woodworking hobby into a woodworking business. In this case, you have the woodworking tools and the shop already set up. This saves you a lot of money at start-up a time when money is normally in short supply. You will still need a business plan for all the reasons stated above. There is absolutely no substitute for proper planning, when it comes to being in business.