Getting a startup off the ground can be incredibly hard.
In fact, about 90% of startups fail in the first year. This is hardly unexpected, knowing that startups operate in high-risk and high-reward environments. The real problems, however, start when you are up and running and need to keep chugging along.
Insurance is important for growing startups. They start to deal with product problems, physical injuries, discrimination, property damage, contract issues, data breaches, and more.
Insurance is important even after you’ve successfully raised funds and start scaling. In fact, according to Failory, startups fail most often when the company has 11–50 employees. And it’s easy to see why. As the company grows and hires more employees, the risks it faces also increase.
Protecting your business
Many founders may think that insurance is the last thing you should be worried about. That it is something to be done after all the critical items have been sorted out. That is an incorrect and potentially dangerous approach. Insurance is important and absolutely necessary. Having the right coverage can make all the difference when ensuring sustainable growth.
Insurance can help mitigate financial risks and make the business more appealing to investors and partners. Also, you can focus on the company’s expansion. As you grow, you will also have to adjust your insurance plan to match your needs in terms of revenue, employees, and products.
Attracting Investors and Partners
If anyone is interested in your company’s risk management, it is your investors. The founder that recognizes that insurance is important before raising funds clearly possesses foresight and preparation that investors look favorably on.
When investors complete their due diligence, they’ll want to see that you have a good risk management strategy. Investors typically try to do anything possible to eliminate or control risk as much as possible. You want to show them that you are prepared.
Additionally, VCs will typically want a seat on your board of directors. This is why most funding contracts will stipulate that you need to purchase a D&O policy within a certain time frame. D&O insurance will protect the personal assets of the board as well as the leaders of your organization. This policy will also extend coverage to the business entity itself.
Strengthening Customer Relations
You might also need to provide proof of insurance to your customers. Some could require it, primarily if you work in the B2B sector. In certain cases, your customers will have specific insurance requirements, such as amounts of coverage. They might also ask you to provide proof of insurance before a contract is signed.
Your customers want and need to be protected if something happens to your business product or data. So, you need to be prepared. It cannot be overstated how important it is to make your customers feel confident and protected – 14% of startup failures can be directly attributed to ignoring customer needs.
Do yourself a favor and take some time to look into an insurance plan that works for your business. Taking the time to create good business partnerships will save you headaches down the line. If you’re still searching for a bookkeeping solution, contact us! We’d be happy to create a customized solution just for your business.