Owning a successful business is a dream many people would like to achieve. Unfortunately, most people do not give much thought to the type of business ownership they intend to have. For some, partnerships and corporations are the best option, but there are those who want sole proprietorship so that they can make decisions by themselves without any interference. While there are several advantages of having sole proprietorship rights, this mode of business ownership also has some associated risks. The following are the five reasons why sole proprietors should get business insurance.
1. Sole Proprietors Carry all the Risk
While sole proprietors do not share their profits with anyone else, they also bear all the risks associated with the day to day running of a business. If, for instance, the business records poor sales leading to a loss, the sole proprietor will have to fork out quite a bit of cash from his or her own pocket to cover the deficit. All salaries, wages, rent and overhead costs must be covered by the owner. This can be quite stressful especially if the sole proprietor does not have any other source of income. The only option they may have is getting a loan to finance their operations. Business insurance can help the business owner to bear these costs.
2. Sole Proprietors Carry all Liability
Owning a business as an individual can put you at great risk of lawsuits. If a client or customer feels aggrieved, dissatisfied by their service, or is injured in any way, he or she can sue for damages. The sole proprietor will bear personal responsibility. Unlike limited liability companies, where the business and the owners are two separate entities, the sole proprietor and the business are one and the same under the law. In case of a lawsuit, the sole proprietor will be held personally liable. If a court awards a huge sum of money to the plaintiff as compensation, the house, business and personal assets of the sole proprietor may be liquidated to pay the amount awarded by the court.
3. Get Protection From Fire and Natural Disasters
Without business insurance, sole proprietors will have to cover the cost of renovating, restocking and rebuilding their business. For some people, it is simply easier to shut down the business and walk away. Business insurance can make rebuilding the business easier.
4. Recover Lost Income
If employees decide to go on strike, or a machine breaks down, the sole proprietor will lose income. The loss can add up to a substantial amount if the breakdown or strike goes on for several days. A business insurance cover can provide the business owner with financial protection against losses. This will help to ensure that the business stays afloat.
5. Liability for Defective, Faulty or Dangerous Products
Sole proprietors can be sued for selling products that cause bodily injury or financial losses, even if the products were manufactured by third parties. An insurance cover will provide financial protection to the entrepreneur in such cases.
The ideal business insurance policy should offer the following coverages:
- Product liability
- Professional liability or Errors and Omission
- General liability
- Commercial auto coverage
- Commercial property
Sole proprietors should purchase a policy that offers all these liability protections. A lot of research needs to be done to identify the best insurer.