The short answer is, “No”. Once you open the doors on a business, the risks you face are potentially exactly the same as those faced by the largest corporations in the land. The only difference is the scale of the risks. You might have only one or two customers when you start out. The world’s largest companies have tens of millions. Think: Toyota. It is facing potential liability in billions of dollars for sudden acceleration syndrome – there are class actions for product liability in many countries around the world.
If you sell cupcakes to your neighbors and one or two suffer diarrhea, you may be liable, but it will not be in billions. That said, start-ups and small businesses routinely underinsure. It is balancing the use of limited amounts of capital. Most people prefer to hope nothing will go wrong. They spend the money on developing good products and services, and then marketing them well. In a recession, capital is even more difficult to acquire and cutting down insurance to the bare minimum is common.
Ignoring the question of financial priorities – in the short term, many businesses survive and properly insure when they can afford it – the main question is what risks to cover. An independent agent or broker will have the experience to deconstruct your operations and point out where the danger lurks. When you are caught up in day-to-day matters, you benefit from an outsider’s more objective view. The list of issues starts with basics like worker’s compensation, and third party liability against slip and fall accidents in your premises. Although this is a pessimistic and cynical view of the world, you need to identify how you might be sued. There are a lot of litigious people in the US and you can be surprised how many of them sue you even though you have not done anything wrong. Then, of course, there are all the people with whom you contract or do business. Think about how much you might have to pay out if the business deals go sour.
Continuing with the idea that there are many dishonest people in the world, have you protected your business against crimes and dishonesty from your employees? What if someone forges your name on a check or steals from the business? Equally important are all those unintentional mistakes that disrupt the business and cause loss. Then there are all those unexpected claims you face when you terminate someone – you can discover you discriminated against this person, or sexually harassed him or her. And what about outsiders who might hack into your computers or try to extort money from you in a denial-of-service attack? If personal information turns up on the internet, you could face action for breach of data protection and privacy laws. It is a scary world.
With independent advice, life is less complicated. In the first years, you need cheap small business insurance to see you through the worst. Find out which types of claim are most common for your business. Insurance companies have business models they use to value risks. This can help you find small business insurance that gives you realistic levels of coverage at an affordable premium rate. The outcome you want to avoid is an expensive policy that does not actually cover the most common claims you face. Remember, by paying for independent advice, you can sue the advisor if you get negligent advice. Hope your advisor is insured? You could write an insurance requirement into your contract.