Things To Think About When You Start a Small Business

Select a business entity carefully

Maybe you started your business with a specific business entity in mind, such as a sole proprietorship. But as your business expands, this structure may no longer fit your needs. Ask yourself periodically if your business entity setup is still relevant, and whether you need to evolve. Thinking through this question will help minimize your risk.

Many business structure options exist, such as partnerships, corporations and Canadian-controlled private corporations. Every option has pros and cons, and whether an option is relevant for your business will depend largely on your circumstances.

Selecting the right structure allows you to create a wall between your personal assets and your business. This is critical when considering your exposure. Speak with an attorney to discuss the details of your business and which business entity is the best fit.

Hold your personal assets carefully

Hold your personal assets strategically to keep them safe. Most business owners hope they’ll never face a lawsuit or another situation that could threaten their assets, but it’s important to consider this risk.

For example, you might decide to put investments into a trust or keep some assets in the name of a spouse or child. For smaller businesses, it’s best to keep separate bank accounts for business and personal expenses.

Keep diligent track of your credit

Your personal credit may intersect with your business credit, depending on your business structure. This is a good reason to carefully consider the various entity structures and which one is right for your situation.

Operating an incorporated business may help keep losses and liabilities away from your personal balance sheet and off your credit report. At times, business loans, including business credit cards, may require a personal guarantee. This means you’re personally liable for any debt incurred on the account.

Consider a business owners policy

A business owners policy combines three essential insurance coverages for your small business:

Business property insurance for the location you rent or own and any property like tools, equipment or inventory

General liability insurance for the cost of property damage, bodily injury or advertising claims

Business income (interruption) insurance for lost income if you can’t operate due to a covered event, such as a fire or theft

Think outside of the box regarding professional liability

Doctors, lawyers, accountants and other professionals aren’t the only ones who need professional liability insurance. Anyone who has a special skill or knowledge is considered a professional and could be at risk for a lawsuit alleging malpractice or negligence. For example, wedding planners and hairstylists have faced lawsuits even though most of these businesses don’t think they need professional liability insurance.

Additionally, if you expand your business to cover a new industry, check with your insurance broker. They can help make sure your existing policy extends to the new business.

Plan for business interruptions

A fire, a hurricane or another event can bring your business to a halt. For these and other unexpected events, business interruption insurance is essential. If you suffer a covered event, it will step in to assist with expenses.

Without business interruption insurance, such an event could put your business in jeopardy. For small businesses, this could mean tapping into your personal savings to keep operations flowing and pay employee wages.

Since business interruption insurance only kicks in for a covered event, talk to your insurance professional about adding flood, earthquake and sewer backup coverage to your policy. Just a few inches of water can cause tens of thousands of dollars in damage. (And you won’t be covered if you don’t have flood or sewer backup insurance.)

When estimating your business income coverage limits, use the annual gross earnings listed on your business financial records.

The bottom line

You’re passionate about your company’s future. One way to ensure it continues to thrive is to stay ahead of the risks. If you need help understanding your business’s risks, arrange a meeting with your insurance broker for sound advice.