Wednesday, November 30, 2011

How to Save Money on Insurance For Start-Ups

The biggest mistake start-ups make is being too optimistic.  Of course, you wrote in your business plan that demonstrates to your investors that you are going to make $1,000,000 in the first year and turn a profit by year three, but that's not what you should be telling your insurance agent.  

As a start-up, cash will make or break your business. CASH IS KING.  You will often have to accept 60-90 terms to get orders, your vendors (and insurance company) will want cash upfront.  Here are a few tips to keep your insurance overhead as low as possible so you can turn your start-up into the business of your dreams:
Since its first store opening in 2005, Pinkberry has nearly 100 locations throughout the United States, Mexico and the Middle East...(11/30/2011: Pinkberry Website)
Be Conservative on Sales and Payroll Estimates
You don't know how much you are going to make the first year.  Your numbers are based on estimated sales based on estimated customers based on research and industry benchmarks.  Insurance policies are generally based on either annual sales or payroll, so the higher you estimate the larger monthly bill you are going to have during that crucial first year.   

How conservative should you be?  
It really depends on your business.  After the first year the insurance company will do a review (nice way of saying audit) with you and will adjust the yearly premium based on your actual sales or payroll.  Go here for a great FAQ on audits.  If you estimated sales of $50,000 per year and you end up doing that in the first quarter, you need to call your agent to adjust the policy so the payments will be spread more evenly.  The last thing you want is to estimate a super low sales or payroll figure, have a great year and have an extremely large bill when the insurance company audits you.  The idea here is to increase cash flow and lower overhead.  

Look at all your options with your independent agent when starting an insurance policy.  Keep in mind that your personal assets could be at risk even if you incorporate, so price shouldn't be the only factor in choosing your policy.  Don't know where to start?  Check out this blog post: Insurance 101 for New Business.


  1. great blog! I know a few start up businesses that failed and should have taken your advice!

  2. You're right: the key world would be REALISTIC and not over optimistic. In any case the well known sentence "better safe than sorry" applies here as well.

    1. Great point! Thanks for your input. Definitely better safe than sorry when your personal assets are at risk.

  3. Awesome blog! Thanks so much for posting this. I'm the owner of a brand new start-up company and we're still trying to get a lot of things figured out. Do you know where I can get free insurance quotes to be able to compare policies? Thanks for your help!


Questions, thoughts, comments? I would love to hear from you! Please post below.