There are over 11 million home-based businesses in the U.S. today. In fact, one in 10 households reportedly operates some type of home-based business. Working from home is a great way to keep costs down, control one’s time, and bring in cash. However, many home-based firms are vulnerable to financial problems because they do not have business insurance, appropriate zoning or a plan for growing the business.
However, many home-based businesses are not operating like a business with a clear plan, professional protections and knowledge of what is and is not allowed in their neighborhood. Here are some of the issues highlighted:
Insurance for Home-Based Businesses
Forty percent of home-based workers believe their homeowners or auto insurance will cover their business activities. But, the reality is that the business is probably not insured. A recent article in Business2Community highlights the insurance gap home-based businesses face because homeowners insurance excludes business-related claims. Even merchandise stored at home or in the car may not be covered for theft. Liability (such as errors and omissions insurance coverage) is another area to consider whether a bookkeeper, Web site designer, computer consultant, or independent contractor, to avoid major financial losses.
Home-based businesses need the correct insurance protection for based on the size and type of business. Make sure you find a broker who has worked with countless small businesses in your field to make sure you have the right insurance products, such as:
- In-Home Business Policy: For a small in-home business, a simple endorsement to an existing homeowners insurance policy may be all that is needed, particularly to cover equipment like computers or construction tools, and greater liability coverage.
- Business Owner’s Policy (BOP): These bundled package policies are designed for small to midsize businesses and provide coverage for business property, liability and business income lost due to covered events.
- Business Interruption/Continuation Insurance: This coverage replaces income and pays for expenses that continue to accumulate in case of a covered loss.
- Business Property Insurance: This would cover stolen merchandise, damaged technology equipment, and other protection for lost inventory and income.
- Small Business Liability Insurance: As discussed earlier, errors do happen, so business owners and contractors need liability coverage for any client losses and, if sued, punitive charges. Some small businesses may need specialized coverage, such as a day care liability, independent contractor insurance or cyber liability.
- Commercial Auto Insurance: Commercial auto insurance may be needed depending on how the car is used or if transporting people is a common business requirement.
- Disability Insurance: Business owners need to be concerned if unable to work and their only revenue is derived from their efforts.
- Life Insurance: If the business income is needed to support others, life insurance should be purchased, particularly if heirs will pay inheritance tax on the business. Also, if the firm is a partnership, “Key Person” insurance on each partner’s life would allow the surviving partner to keep things going.
Working from home is common, but zoning restrictions and city ordinances can impact operations. They may include limits on numbers of employees, parking, business license requirements, and more. If the business stores items on the property or needs signage, there could be additional rules. Research what is acceptable in the area before being forced to move the business or being hit with fines.
Plans for the Future
Every business should have an organized plan that addresses marketing, equipment needs, potential growth and finances. However, many businesses operate on a day-to-day basis. Whether the plan is to remain an independent operator, or grow from operating in a garage into the next Apple, every business should take time to plan. What will future space, equipment, staffing and money needs be? Planning now prevents hiccups down the road.
The 3 Biggest Mistakes Home-Based Business Owners Make – Business2Community
New National Survey Finds Nearly 60 Percent of Home-Based Business Owners Without Insurance –– Independent Insurance Agents and Brokers
Does Your Home Business Need Insurance – Entrepreneur