Risk Management for Small Business Owners

Natalia Autenrieth In her professional lives across the United States, Natalia Autenrieth, CPA has audited Fortune 500 clients as part of a Big 4 team, built an accounting department as a controller of a large hospital, and served as a CPA consultant to municipalities. Today, Natalia coaches in the financial industry and writes about business finance, financial technology, and personal money management. Her ghost-written articles have appeared in thought leadership and expert blogs, as well as Kiplinger and Accounting Today. Read more about Natalia and her practice at www.AutenriethAdvantage.com.

Risk Management for Small Business Owners

Small business owners aren’t like other people. They have a unique set of driving motivations and risks that result from their choice of work. Here are 5 ideas to ensure that small business owners and their families are adequately protected.

Health insurance

A business owner doesn’t have the luxury of a corporate employer who will take care of providing health insurance options. Depending on circumstances, small business owners have several choices when it comes to health insurance.

  • Solopreneurs can shop for a personal insurance plan for themselves and their family.
  • Those with 1-50 employees (100 in Virginia) should explore SHOP, or Small Business Health Options Program, a marketplace for health insurance that’s a part of the Affordable Care Act.
  • Private health insurance exchanges are another option. A small business owner wouldn’t get the tax credit or the broad number of options, but plans can be attractively priced.
  • Direct purchase from the provider.

Personal liability insurance

Diligent small business owners invest the time in making sure that their business insurance is adequate, but often miss the opportunity to do the same for themselves. A personal liability policy can serve as an extension of other policies and deliver additional protection at a reasonable cost. Those in the business of professional advice (accountants, consultants, etc.) should consider adding professional liability insurance.

Personal property and casualty insurance

All tangible assets should be insured to minimize the financial impact on the family in the event of a disaster or accident. Small business owners should evaluate their situation to make sure they get an appropriate mix of policies (such as homeowner’s insurance, earthquake insurance, renter’s insurance, etc.)

Life insurance

Life insurance policies get overlooked. When the business is just starting out, many business owners skip life insurance to control expenses. When the business is thriving, they feel that there’s enough value or cashflow in the business to take care of their families. “Self-insurance” is a term that gets thrown around a lot. What many small business owners don’t realize is that the level of wealth it would take to be truly “self-insured” is staggeringly high. A life insurance policy can help your family keep their home and pay basic living expenses. It can also help pay for your final expenses and medical bills. Work with a specialist to find a policy that makes financial sense for you.

Disability insurance

Short-term and long-term disability coverage is critical to ensure that your income stream isn’t interrupted by an illness or an accident. Look at your policy options carefully to understand how much income the policy would replace, how quickly it will come into effect, and how long the payments will last.

Risk management for small business owners

Running a small business is a lot of work. It also introduces a host of unique risk exposures. Small business owners must ensure that they have considered their options for health insurance, personal property and casualty, personal liability (plus professional liability where it applies), life insurance, and disability.

In closing, there is one other risk unique to small business owners, and that is risk concentration. When your business is your life, it’s easy to plow all “extra” cashflow and assets into the business, especially if you aren’t relying on external financing. Your business may be your focus and the largest asset, but it’s important to have some investments outside of it. Work with a financial planner to review your options for IRA, SEP IRA, Solo 401(k), and other tax-advantaged savings plans.