Protecting your business in times of crisis should include three areas:
Important tips to avoid crisis in your business or industry.
Crisis is one term that unfortunately most business owners are all too familiar with. Whether the crisis comes in the form of a global slowdown that is being witnessed around the world for the past few years, or it comes in the form of budget freezes because your company is in the red – every business needs to know how to survive in a crisis as that is the only way to grow and succeed. When things are going well for a business and orders are pouring in, there is a real possibility for business owners to feel a sense of security and success. However, the nature of business is that it is extremely unpredictable and things can go from good to bad in a matter of days.
The recent recession followed on the heels of a major economic boom and no one was prepared for the gloom that followed. Thousands of people were left without jobs or any other means of income and hundreds of companies shut down because they simply did not have a plan to deal with the crisis. Therefore, if you want to see your business succeed and expand, you need to know how to keep your business going in times of crisis.
Types of Essential Protection
People protect their bodies through a healthy diet and regular exercise. Others protect their earthly possessions by putting them in safe boxes. Businesses have also the same types of protection available. These three basic protection needs that typically apply to businesses are:
- Asset protection for business borrowings and shareholder loans
- Revenue protection for key people
- Ownership protection for the principals
In every type of business there are people who truly generate profit. These are your key people – people who need to be protected and worth keeping. Material things can always be replaced or repaired but a key person’s death or disablement can have dire results which can lead to a financial loss which could wipe out all your assets.
If this situation happens, a business may be forced to sell assets to ensure a steady cash flow. Cash is particularly important if creditors press for payment or debtors hold back payment. Likewise, customers and suppliers may begin to question the trading capacity of the business, and its credit rating could fall if lenders are not willing to extend credit. Outstanding loans owed by the business to the key person may also need immediate repayment.
Asset protection can give your business with enough cash to safeguard its asset based so it can repay debts, free up cash flow and maintain its credit. Moreover, it can also release personal guarantees secured by the business owner’s assets.
Huge loss could happen if the key person in your business is suddenly gone. Revenue protection can give your company enough money to make up for the loss of revenue and costs of replacing a key employee or business owner should they die or become disabled. Revenue protection is also helpful when finding and training a suitable replacement, errors of judgment that happen due to a less experience replacement, reduced morale of employees, and demands are not met
When a business owner dies, he could bring with his death his company as well. Most of the time businesses fail or close because of a lack of business succession planning. However, business may negotiate a buy-out during an owner’s retirement. But what if one of them dies?
The remaining owners must now deal with the deceased owner’s legal
representative, who may be more interested in the needs of the estate than the needs of the business. More often than not, many business owners think that this kind of provision has been drawn out only to find out that there is no buy-out provision, or if there is, it’s both effective and poorly funded.
Ownership protection can give you enough cash to transfer the share to the surviving partner from the partner who died, became disabled, or suffered a critical illness which results in the outgoing owner leaving the business.
Business Insurance: Protection in Times of Crisis
Business insurance works as a necessary risk prevention for the future. Identify what type of business insurance your company will need the most in the future. Which aspect of your business will suffer the most? Being prepared for any crisis that may occur in the future will help keep your business afloat. Some of the business insurance solutions include:
- Workers Compensation: What risks are your employees exposed to in the type of business you have? Whether or not the risk is high or not, workers compensation is required for every business and company to cover their employees against injury and illness sustained at work. By having workers compensation, you ease the pressure from yourself when one of your workers needs financial support because of an accident.
- Key Person Insurance: You set up this insurance especially for the key person or people in your company. Its difference from workers' compensation is that while your employees receive the benefit of this type of insurance, key person insurance allows you to insure your key person but the company is the beneficiary. Therefore, when you lost a key person due to various reasons, you can make a claim against profit loss because of his absence.
- General Liability Insurance: This type of business insurance covers you for any claims that might ensue when someone makes a claim for personal injury and damages caused by your company. This also includes a lump sum payment which you can use to pay any legal fees the complaint may incur.
- Product Liability Insurance: This is similar to general liability insurance but the main focus is that someone made a claim about an injury or damage caused by a product your company is manufacturing. Therefore, if you are a company which is into the production of goods, you might consider setting up a policy to cover you for such claims.
- Business Interruption Insurance: What are the possibilities of a flood, an earthquake and any other forces of nature that might put your business at a temporary halt? This also includes theft and vandalism which can cause serious damage to or loss of important documents and equipment. When your business stops, income also stops. This can put you into a difficult financial situation if you have mortgages and loans to pay. Business interruption insurance offers your business protection against such situations.
There is no problem without a solution. In such perceived events, there is always something you can do to lessen the impact of these changes. One thing is to save money. Another one would be to make investments.
One of the things that you could invest in is insurance. Insurance that would protect you or your family from unlikely things. Some types of insurance which could help you deal with change in the business are the following:
- Income Protection – It is especially helpful when you become disabled for an indefinite period of time through an accident or injury at work. It would pay you 75% of your monthly gross income which could be a steady stream of income. The benefits can be used in any way you deem possible.
- Key Person Insurance – It is a type of insurance that would cover you just in case the main person in your business is gone. By providing key insurance protection, your employees feel protected keeping them to be recruited by a competitor.
- Business Expenses Protection - If you are unable to work and you have Income Protection, you need not worry because you will receive a steady flow of monthly benefit that would help you with the expenses. However, how would you expect your business to run smoothly if you cannot oversee it because you are disabled? The Business Expenses insurance pays you to cover your business if you are unable to oversee it due to a critical illness or injury.
Benefits of Income Protection
Aside from the monthly income it gives you, the most important benefit income protection insurance can give you is the power to choose. When one becomes disabled or struck by illness, the first thing they were robbed of is choice – the choice of how they would live their lives. An injury or illness can drain a family physically, financially, and emotionally. But having income protection takes away the insecurity of not being able to choose.
- You can choose your lifestyle. Armed with the certainty that you can still have a source of income despite the disability, you have the choice to maintain the same lifestyle. With income protection, you can pay your bills and day to day expenses without depending heavily on your savings.
- You can choose your medical care. Getting well and re-entering the work force becomes less of a worry when you are well-taken care of and undergo proper rehabilitation.
- You can choose not to be stressed. Stress is often a natural partner to injury or illness but it will only hamper your recovery and make life even more unpleasant for everyone. With income protection insurance, you can recuperate faster and completely because you know that your finances are well taken care of.
Benefits of Key Person Insurance
Key man insurance stabilises your company in times of loss because of an illness or injury. It also lessens the impact created by the loss of one of your major or key people. Other benefits of a key man insurance policy are:
- It serves as a back-up plan. It covers the cost of replacing the losses that long-term illness, injury, absence, or death of the key person or people in your company will in your business.
- It covers the cost for hiring a replacement. The key man insurance policy will help cover the cost of replacing or hiring another person to replace him.
- It retains your employees. Giving your top employees enough cover can boost their morale. It makes them feel that you care for their well-being as an employer. You also avoid losing your best people to competition. But the most important thing is that by protecting your employees, you are protecting your business as well.
Benefits of Business Expense Insurance
Business Expense Insurance gives you an avenue to protect your business from the unexpected. Aside from the tax cuts it can give you, other benefits you can get from business expense insurance are:
- Protect your employees - the biggest asset of a company or an organisation is its people. No matter how small or big the company is, or how brilliant the marketing strategy is without your employees’ contribution, all will just come to nothing. Getting business expense insurance boosts your employees’ morale making them perform more efficiently and productively. It also increases them the confidence in the company avoiding being pirated by a competitor.
- Protects your business debts - debts cannot be avoided when you have a business. Business or bank loans are necessary to improve and expand your business. However, death, illness, or injury, can have catastrophic impact on your business if you have outstanding debts. In order to make your business remain viable, you need to take out life insurance to cover your mortgage and personal debts. It insulates your business from claims of creditors without concealment or tax evasion. It also frees up your cash flow and maintains your business’ credit standing.
- Covers your business expenses - Business Expenses Insurance covers the fixed costs of your business, such as monthly rent for a maximum of up to 12 months. It ensures that your business will continue even if you have been seriously injured or ill.
Having a business gives you a higher form of income than those who are salaried. However, it could also mean a lot of stress. It should not be the case when all parts are properly covered.
How to Compare Business Insurance Quotes Online
Looking for business insurance cover is not all about comparing prices, although this is an important part of the whole process if you want to ensure that you do not blow the business budget. It is important for any business to strike a balance between the cost and the suitability of coverage in order to find the right plan, which means that when you compare online business insurance quotes you need to look at a variety of different aspects in order to get suitable coverage. It is this combination of factors that will determine whether the insurance plans you are considering are going to be right for you.
Some of the areas that you need to take into consideration when you are comparing online business quotes include:
- The cost of coverage: This will be a key consideration for most businesses that are keen to keep outgoings down as much as possible. You will be able to compare the cost of coverage with ease when you compare your business insurance quotes online, so look for plans that come with competitive prices. It is always advisable to work out your maximum budget before you start looking for business insurance plans, as you can then focus on plans that fit in with your budget. However, make sure that you are realistic with your budget if you want to get decent coverage that will provide the level of protection you are looking for.
- The features of the plan: Comparing the features of the plans you are considering is very important, because this will enable you to see exactly how the plan may benefit you in the future and what exactly if provides protection for. You should make sure that you also consider the exclusions and restrictions on any plans you are looking at before you make your decision, as this will also contribute to the overall suitability.
- The level of coverage: When you take out business insurance coverage you need to ensure that the level of cover is sufficient to cover losses in the event of a claim. Looking at the level of coverage that comes with these plans is therefore a very important part of ensuring you get the right cover for your needs.
- The insurance provider: In addition to looking at the above aspects when you compare online business insurance quotes, you may also want to look at the provider. It is always worth looking at areas such as how long the insurance provider has been operating, looking at reviews from past and existing customers, checking the rating to get an idea of the financial stability of the insurer, and looking into the claims process to ensure that you will not experience any major issues if and when you do have to file a claim.
Tips to Keep Your Business Going in a Crisis
If your business is facing a crisis, make sure you don’t let your emotions get the better of you. Since most business owners have immense emotional stake in their businesses, it is easy to make decisions based on emotions rather than facts. Hence, by following the tips mentioned below, you may find it easier to get through the crisis without risking it all.
- Take stock of your current financial position: There is no doubt that a cash rich company can overcome most types of obstacles that a business faces and that is truer in moments of crisis. The first thing you need to do is take stock of your financial position. Be aware of what your monetary reserves are and how long these reserves can help to keep your business afloat. You should also make a list of all the payments that are owed to your business and determine what cash your business is likely to have coming in the next few months. After taking stock, you need to ensure that you have enough cash to survive for at least one year. If your reserves are not adequate for that purpose, you need to find ways to increase your cash reserves. You can do this by selling off your entire inventory, even if you have to do so at less than your normal selling price. It is never a good idea to borrow too much loan during a crisis as it often becomes difficult to return the debt and that can cause your business to collapse. Instead, even though you may not want to resort to it, it could be better to sell off some of your stake in the business in order to raise the required cash. When you have cash in hand, you can make use of opportunities that your competitors may not be able to do if they are short on funds, and without having to worry about convincing financers to loan you the required money for your business.
- Focus all your energies on money generating actions: Businesses often spend a lot of time and resources on actions that do not directly relate to income. While these may be necessary to succeed and expand, when you are going through a crisis, you need to drop all such activities and focus only on those activities that bring in more income remember cash is the life blood of a business. Ramp up your marketing efforts and increase your sales personnel if you have to. Most businesses would not even think of hiring new people during a crisis and may have to in fact let go of some of their employees. However, if you hire sales people who work on higher commissions and lower base salaries (which is extremely possible during a global crisis), then you can benefit from increased sales without putting your business under added financial stress in terms of high employee salaries. In addition to trying and increasing sales of your current products, you should also consider whether it is feasible to add new products or services to your business so that they can help you overcome the crisis.
- Avoid using credit lines as much as possible: As a business owner, it may seem very tempting to take short term loans that could help to keep your business afloat during a crisis. However, these loans typically come with very high interest rates and paying them back can be a real problem. Not only will this increase your debt, but it may push your business further into crisis. Hence, unless you are absolutely sure that you can pay off the loan with your business income in a few months, you should avoid high interest credit lines as much as possible.
In order to keep your business going in a crisis, you need to make decisions from your head rather than your heart. Try and keep your costs as low as possible, maintain adequate cash reserves, and enhance income generating activities – all this will help you to succeed in spite of facing a business crisis.