Managing Risks Within a Small Business

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Darin Bradshaw has recently opened a ceramic tile sales and installation business. Darin has organized the business as a sole proprietorship with six employees whom are not any relation to Darin. Darin knows that the business must have some type of insurance to cover the employees but is unsure of the various types of insurance that are available for this type of business. Darin would like an investigation done to conclude on which insurance would be beneficial to his business.
Elaborating on the small business requirements, analyzing the internal and external threats that the business must identify to minimize the possible litigation, and identify the insurance strategy that would best fit the business needs for the future growth of the business. Because of the simplicity of this business structure and that, the taxes are not paid from the business but by the owner, there is no requirement for extensive financial statements to be created (Tiwary, 2008). However, it is wise to keep accurate records in case something were to happen to Darin’s small business.
In elaborating the various types of insurance, that is available to small business
With any business, there are risks involved just to operate the business. Depending on the sizes and type of the business would need to be considered when obtaining insurance for the small or large business. Property, liability, health, disability, and worker’s compensation are all types of insurance that may be required for any type of business. Although, some small businesses like Darin’s will not have to obtain certain types of insurance because of the type of business it is. Darin’s business should be insured to the full potential just in case something happens. The risks of not having insurance would certainly not help the business if something bad were to happen. The most important insurance to have with any business is the property insurance that would cover damages, and other things that the business would need. Following OSHA guidelines such as its regulations regarding aisles and passageways will help prevent people from being injured during a visit to the company’s property (OSHA, 2009).
Darin finds that two important features of worker’s compensation are that the employer is required to pay specified benefits for economic loss to injured employees without regard to employer fault or negligence, and employees are not allowed to sue employers for injuries under tort law (Harrington, 2004). Since Darin has six employee’s he would need to invest in workman’s compensation so that his business is covered if an employee is injured. A tort is a civil wrong that affects a person or property and injuries result (Jennings, 2006). If Darin has these employee’s listed under independent contractor’s based on his profile of the business and the services that he provides. Darin may require that these independent contractors have their own type of liability insurance.
Four main types of insurance contracts that a business can choose from to protect their business in a variety of ways. Instead, policies usually require the policyholder to bear some risk. The first is coverage for policyholders’ losses from property damage and associated loss of income due to the unforeseen events. Secondly, liability covers the liability and related coverage’s of injury to third parties. Darin needs to think about his small business. If something should happen at this point he would not be covered, and would lose his business. Another type of contract would include surety bonds, and financial guarantees.
The type of business and the type of product or service will determine the factors that go into insurance decisions based on the type of business. The employee’s working for Darin could possibly get hurt on the job if Darin does not have the right type of insurance it could end up costing the business. The amount of coverage will be assessed based off the extent at which possible injuries harm, or liability issues could occur. Because of the complex liabilities, that Darin can be faced with, the type and structure of an insurance policy will determine the rate of premium paid on policies in order to limit the amount of deductible payment that would have to be paid out in the event of a lawsuit settlement. This type of contingency can diminish the growth of a business because of the necessary precautions needed for Darin’s business. In some cases, many different insurance policies are needed in many layers because of the vulnerability of risk from such lawsuits.
Although internal environment could be affected by, the benefit coverage and morale could go up or down depending on how much/less coverage an employee receives. The external environment could look for loopholes and coverage lapses in the business’ coverage and offer additional coverage to the businesses employees. Some factors that govern a small business’s insurance decisions are pricing- benefits, costs, and advantages. They have less discretion on terms of coverage and price. Small businesses are also easier to place tighter regulatory controls for business’s like Darin’s. Darin can see that there is a correlation among the level of internal risk a small business may incur and its external environment because if the external environment is aware of any malpractice or fraud going on within a company they may not patronize that business.
Furthermore, the internal risks are minimized through proper contingencies such as insurance policies that cover liability or loss of income due to accidents or legal matters within the small business. For commercial property, insurance serves as first-party coverage, which protects the business from such issues as property damage, theft, the commercial building, the business’ contents, and loss of income due to such damages. Furthermore, Commercial General Liability Insurance policies is the main form of protection that insures the business outside of what other typical policies are designed to cover. This includes injuries or damages on the business premises or from the products that Darin has within his business. Because the risk is minimized, the value of the company is protected along with its ability to conduct normal business with reassurance of liability protection.
In conclusion, for Darin’s to minimize risk further, the company can buy into surety bonds as a form of protection form contractors to insure a guarantee of a completed contracted deal. A business can also take an insurance policy on high-ranking employees or specialized employees who are of great value to the company. These methods will protect the interests of Darin’s small business in the event a legal situation arises. In any type of small business, there will be a considerable amount of risks involved with having your own business. Keeping the business safe and insured will keep the risks to a minimum.

References
Jennings, M. M. (2006). Business: Its legal, ethical, and global environment (7th ed.). Mason, OH: Thomson/West.
OSHA. (2009). General Requirements – 1910.22. Retrieved 18 July 2011 from: http://www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=STANDARDS&p_id=9714
Tiwary, R.S. (2008). Types of Business Organizations — Research Starters Business (p. 1). Great Neck Publishing. Retrieved 18 July 2011 from http://ehis.ebscohost.com/ehost/pdfviewer/pdfviewer?hid=23&sid=a7b65ea0-07e6-479a-a8df-ceae86298b93%40sessionmgr113&vid=7

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