Don't forget insurance

The dream of many entrepreneurs is a successful business, with sales and profits pouring in from deals with big customers.

As these small business owners pursue those dreams, they also should be taking care of the mundane parts of running a company, such as buying adequate insurance coverage.

The kinds of insurance you'll need for your company, and the amount you need to purchase, depends on the type of business and where you operate it.

If you're running a day-care center, your business has different insurance needs than a restaurant or a bakery. And if you're working out of your home, the insurance you'll need will also be different -- you do know that you need business insurance in addition to your homeowners insurance, right?

Some types of business insurance are optional, while others are required either by law -- workers compensation insurance is mandated by many states -- or by a lending agreement.

For example, if you own the building where you do business, your mortgage lender may require property and liability insurance.

But even where insurance isn't required, you should buy adequate coverage -- or you could see the business you've worked so hard to build be decimated by unexpected losses.

Of course, you'll need comprehensive property insurance that will cover damage due to fire and other calamities. You may also want extra coverage for a variety of contingencies that aren't covered in your policy; for example, you might need to pay more to get coverage for flood or other water damage, or to have windows and other glass fixtures repaired or replaced under specific circumstances.

You'll also need liability insurance, which gives you coverage against injuries that occur on your property or that are caused by your employees. And most states mandate that employers buy workers compensation insurance in case employees are injured while on the job.

If your business uses cars, trucks or other vehicles, they also need coverage.

But these are basics that every company needs to buy. Depending on what kind of business you're in, and where you conduct that business, you very likely will want to buy coverage to protect you against losses not covered in a standard policy.

For example, you might want to get business interruption insurance, which helps offset some of the losses your firm would suffer if a fire or other disaster forces you to shut down or cut back operations while you're cleaning up or rebuilding. This kind of insurance provides money for you to make loan payments and pay your employees while you're regrouping.

If your company is involved in manufacturing, you should buy product liability coverage.

The Insurance Information Institute, a New York-based industry group, sells a book, Insuring Your Business, detailing some of the specific kinds of coverage that different categories of businesses need. For instance, it notes that retailers tend to make interior improvements to the stores they rent, so their coverage needs to reflect that investment.

The book can be ordered through the institute's Web site (www.iii.org), which also sketches out some of the insurance that businesses will need.

If you're not sure of the kind of insurance your particular line of business requires, a trade or industry association can tell you. You might even be able to buy a policy through such an organization.

Your attorney may also be able to help, and, of course, an insurance agent.

If you don't have an agent, the Insurance Information Institute advice is to ask friends and people in the same kind of business for a referral.

If you're happy with the agent who handles your personal insurance, talk to him or her about a business policy.

But, the institute says, "make sure the insurance agent is knowledgeable about your business's particular insurance needs and methods to reduce exposure to loss."

Home-based businesses often overlook or shrug off the need for insurance, according to authors Paul and Sarah Edwards. In their book Working From Home, the Edwardses say at two-thirds of the home business owners they've interviewed had no business insurance at all, and most didn't know they even needed it. Many other business owners believed mistakenly that they were already covered by existing insurance.

These business people are risking huge financial losses in the event of an accident or disaster.

A standard homeowners policy does not cover losses to a business located inside a home. If your house suffers fire or weather damage, and your business equipment or files are ruined, you would collect nothing.

If the FedEx or UPS person trips over your children's toys while delivering a business package, your liability insurance won't apply.

The Edwardses also note that some homeowners insurance policies can be voided by the existence of a business inside a home -- and a home includes a garage and any other structures on the property.

Joyce M. Rosenberg comments on small business trends for The Associated Press.

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