Many startups and small business owners are unsure about whether they need insurance, and if they do, what sort. It’s a good question which comes up quite often.
If you had a bricks-and-mortar shop, you would have insurance to protect the goods you are selling against theft, fire and similar damage. You would also have insurance for ‘slip fall’ claims in the event a customer entered your shop and fell or was injured. These insurances, among others, are a requirement for physical shop fronts but what about your online shop?
What are your potential liabilities?
If you have an e-commerce business, you may be liable for damages for injuries caused by the sale of your jewellery, baby clothes, razors, or claims for food poisoning and allergies to your products. There are a number of things they may try to sue you for, even if you have not manufactured the products yourself.
If you sell goods under your business name, or for example, if you have repaired or refurbished the goods you sell, or if the manufacturer is overseas, you may be held responsible for any of the products sold by you.
Other potential losses to your business may arise from such things as data loss, your website being down/unavailable for a period of time, hacking, and even loss of stock in your warehouse
Is insurance worth it?
Specialist insurance cover for e-commerce website businesses is difficult to find. Many insurance companies refuse to insure online businesses and do not have suitable products available.
Even general business continuation insurance which may protect for some instances of interruption usually requires a minimum number of days of interruption before you can claim, so you may not qualify to ever make a claim. Or it may not be worth it.
Then there are the usual non-online specific business insurances such as workers compensation, professional indemnity insurance and similar, but some are not relevant to your specific type of business.
Insurance can be expensive also. And very difficult to claim. If you do decide to go that route, ensure you read the policy carefully. Very carefully. And ask a lot of questions.
Here are the best ways to protect yourself, your assets and your business without insurance:
1. Have good terms and conditions on your website
Well-drafted terms with a limitation of liability clause will go a long way to protecting you, your assets and your business.
2. End User License Agreements
Have strong End User License Agreement (EULA)/Service Level Agreements with good providers for your website business.
If you cannot access your service providers easily, if they are unavailable or not responsive, it could cost you a lot of money in lost sales and revenue.
3.Incorporate
Consider setting up a Pty Ltd company. The benefits are not just to protect your personal assets.
You can also claim tax deductions for home office when you work from home, business running expenses and you have more flexibility to structure your own income and business income.
The tax rate is attractive as well as making capital raising easier since you can issue shares and structure your business with investors more easily.
4. Intellectual property
Protect your intellectual property and company by registering your business name and logo.
If you only have a registered business or company, or a domain name, someone may come along, trademark your business or company and conduct the same business out from under you. You will have difficulty defending it and you may have to start from scratch.
Don’t risk your personal assets and your business. You spent a lot of time and effort to acquire assets and set your business up, so make sure you protect them.
This article first appeared on StartupSmart.
Kye began his career at a Fairfax daily on the North-West Coast of Tasmania. He has since taken his belongings, and keen interest in technology, to Melbourne. He has a bachelor of Arts majoring in Political Science from the University of Tasmania and a Graduate Diploma in Journalism from RMIT University.
