New Study by an Insurance Company Notes Shortcomings in Business Risk Planning

If you are an entrepreneur or small business owner, chances are that your plate is extremely full.  Many innovative and driven business owners must wear many hats, which creates a risk of putting all of their eggs in one basket.  While this strategy can work for prolonged periods, all the eggs break if the basket is ever dropped.  A new study entitled 2015 MassMutual Business Owner Perspectives notes that the majority of small businesses are not optimally prepared to mitigate the impact of many unexpected events that may suddenly arise.  Although the study revealed that many business owners view protecting their business against potential risks as important, the majority of small business owners spend almost all of their time working for their business instead of work on their business.  This allocation of time often is dictated by the demands of the business but leaves business owners without important long-range planning.

Determining the Value of a Small Business

Calculation of the worth of a business only appeared to be an issue of moderate importance to those who participated in the study.  During the preceding three years, slightly over half of the respondents indicated that they had a business valuation performed.  Those individuals who considered this an important issue tended to focus on the financial success of the company rather than mitigating risk and a source of family support after selling the business.  Even among business owners that conducted an analysis of the value of their business during the preceding three years, one in three did not work with a CPA or other financial professional.  Rather, these business owners performed the analysis on their own.  A reliable business valuation should be more than a “guesstimate.” 

The use of a properly credentialed appraiser that produces a valuation in writing serves a number of risk mitigation functions.  First, the process of quantifying the value of the facility, inventory, machinery, vehicles, and other property in the aftermath of a catastrophic loss is easier.  Second, proper valuation of the business is necessary to determine if you have sufficient coverage especially for types of damage that have sub-limits.  Third, business interruption compensation can be established more easily because “lost profits” can be more readily quantified.  Fourth, the obligation to buy out a partner or his/her spouse often will go smoother if there is a value assigned to the business that both the buyers and sellers are comfortable accepting and have previously agreed on.  Fifth, the valuation will assist a business owner in reconciling the current value of the business with future post-retirement income needs, so any shortfall can be addressed.

Safeguarding the Business from Liability Claims

A multi-million dollar product liability claim, slip and fall at your facility by an individual making a service call on equipment, or a lawsuit for violation of intellectual property rights can inflict substantial financial harm on a business and even drive a business to the brink of bankruptcy.  Whether you are developing an estate plan and choosing the correct business form to provide maximum financial protection against lawsuits or evaluating policy limits for your liability coverage, this issue merits careful consideration.  Many policies might not cover or might limit coverage for certain perils and types of loss.  A careful review and periodic updating with your insurance broker or agent is imperative to ensure you have adequate liability coverage.

Life Insurance & Long-Term Disability Coverage

If your small business is a primary source of income for you and your family, a severe injury, debilitating illness, or unanticipated death can destroy your business and leave your family without sufficient funds to cover mortgage payments, college tuition, monthly utilities, and other household expenses.  A long-term disability policy can provide a vital source of replacement income for business owners, including professionals like physicians, accountants, lawyers, engineers and those in other occupations.  Life insurance also can provide such relief in the event of a premature or unanticipated passing of a breadwinner.

If you have questions about insurance claims, our law firm has represented many policyholders in claims disputes involving a multitude of types of insurance, including homeowner’s insurance, commercial insurance, long-term disability insurance, life insurance, and auto insurance.  Our Miami insurance claims firm invites you to contact us if you are having difficulties with your insurance company.  Florida insurance claims lawyer J.P. Gonzalez-Sirgo handles claims against insurance companies in Miami and throughout Florida. The Law Firm of J.P. Gonzalez-Sirgo, P.A. offers free consultations and case evaluations.  No Recovery, No Lawyer Fees.  Call 305-461-1095 or Toll Free 1-866-71-CLAIM.

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