Anytime a new business is launched, there will almost always be vulnerabilities that were not foreseen. Sometimes they could have been predicted if there had been a more significant amount of market research analyzed. Other times, key indicators in a given market weren’t forthcoming when the business plan was written.
Unfortunately, when it comes to home-based startups, this is still a relatively new paradigm since the Industrial Revolution changed world economies from those dominated by handicrafts and agricultural goods to mass-produced goods in the 18th century.
Even into the 20th century, techniques for mass production were still ‘making history’, as any school child can tell you. For example, what elementary student in the United States can’t tell you how huge Henry Ford’s moving assembly line was within the field of manufacturing? His innovation brought the assembly of a single automobile from a period of half a day down to just over 1.5 hours. From there on out, as they say, the rest is history (as well).
You Can’t Blame the Pandemic for This!
While you might hear it said that the pandemic created an environment in which home-based businesses needed to be created, that’s only half the truth. The trend started long before Covid-19, primarily due to corporate restructuring and downsizing. Still, the pandemic did force a literal explosion in the number of home-based startups due to restrictions and mandatory shutdowns.
Sadly, so many home-based businesses are being launched so quickly that there really has been little time to assess potential risks. However, some have been evident from the very beginning. Those would be risks that can be balanced with adequate insurance coverage. Perhaps this is where today’s home-based startups should begin assessing and combating risks that can be covered by insurance.
Your Homeowners Insurance Will Not Cover Commercial Losses
Suppose you think of this in terms of your automobile coverage. In that case, you probably know that your standard auto insurance policy will not cover losses incurred while in the process of using your personal car for business-related activities. For this, you would need commercial auto insurance. This can easily be equated to running a home-based business and trying to get compensated for a business loss.
If, for example, vandals broke into your home office and destroyed all your computers and business equipment, you couldn’t claim this on your homeowner’s policy. Instead, you would need commercial property insurance because it would be a business loss, not a personal loss. Sometimes commercial property insurance is referred to as commercial business insurance, but they cover the same things. For example, this type of policy typically covers:
- Damage or total loss of business equipment due to fire.
- Vandalism, as mentioned above, or theft.
- Lightning strikes.
However, although considered an Act of God or an Act of Nature, lightning strikes are covered. In contrast, other Acts of Nature, such as a river overflowing, flooding your office, and destroying your business property, would not be covered. For this, you would need flood insurance.
Covering All Your Bases
You should also know that commercial property insurance does not cover all your risks when assessing your risks. The good news is that there is coverage for other types of damage or loss, and you can get this inclusive coverage with something called a Business Owner’s Policy, BOP. A BOP combines three different types of coverage you should have as a home-based business. These include:
- General Liability Insurance.
- Business Income Insurance.
- Commercial property insurance.
Commercial property insurance was discussed above, but the other two types of insurance haven’t been mentioned as yet. General liability insurance protects you against losses sustained by any third party for which you can be held liable. Business income insurance covers just what you might think it does, and that would be loss of income, and here your policy will set out covered income losses.
A Final Word on Security
It should also be mentioned that security is an absolute must if you are trying to reduce financial risks to your home-based business. Yes, some theft and vandalism will be covered, but why go through all the necessary steps to be compensated if you can prevent those losses in the first place?
Just because you are a home-based business, it doesn’t mean you won’t have at least one other person working there with you. Do you know this person? Have you thoroughly vetted them? Remember, this is more than your place of business. Beyond that door are your home and family!
Running a thorough background check would help eliminate some of your concerns and ultimately reduce the amount of risk you face. However, business losses may be covered other than personal safety if that ‘employee’ has nefarious reasons for working with you. Among them might be the theft of intellectual property, which can be covered by insurance.
In the end, it may not be something you relish doing, but always take the time to assess your risks before opening your home-based business doors for the first time.
We hope you found this blog post Potential Risks That Can Leave Home-Based Startups Vulnerable useful. Be sure to check out our post How to Work from Home with Maximum Benefit: Expert Tips for more great tips!
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