Every business needs a variety of insurance policies. Understanding how to shop for insurance will ensure you get a good price on the right coverage for your needs.
Start by Doing Your Homework
Here’s what I recommend:
• Network – Get to know 5 insurance brokers with solid reputations.
• Identify carriers – Determine who the top insurance carriers are in your industry. Find out if your trade association endorses particular carriers.
• Check coverage requirements – Make a list of all the insurance coverage requirements in your agreements with customers, suppliers and lenders.
• Research coverage options – See what is available for the type of policy you need, and then make a list of “must haves” and “can live withouts.” For example, if you’re shopping for health insurance for your employees, is a PPO a must, or will an HMO be fine?
• Improve your metrics – Premiums are often calculated based on a formula. Find out what this formula is and then gather your historical data that relates to it. Determine if there’s anything you can do to improve your metrics before you start getting bids, then develop a projection of these metrics for the upcoming policy year based on your understanding of the formula and any changes you intend to make.
• Qualify for discounts – Learn what best practices and procedures need to be in place in order to take advantage of all available discounts. If you’re not already doing these things, start doing them now.
• Avoid surcharges – With many types of insurance, events that are considered to be outside the norm will result in surcharges. Understand what typically causes surcharges for the type of insurance you’re researching, and look at ways to avoid them.
Then Solicit Bids
By this point you should have a thorough understanding of what’s out there and what you need, and a projection that includes estimates of the metrics that the insurers need to know.
Reach out to two or three of the brokers on your list and ask for quotes. Be specific in your communications to ensure you’ll be able to make “apples to apples” comparisons once the quotes come in – in terms of both the assumptions that the insurer uses to calculate the quote and the specifics of the coverage provided. Evaluate the quotes, and move forward!
Need help shopping for insurance for your business? As your part-time CFO, this is one of the many services I provide.
Hoping to get a loan? As I said in a previous article, “Is Your Loan Package Ready for the Spotlight ,” lenders only fund loans when they’re comfortable that you’ll be able to pay them back. Having an excellent loan package is critical for convincing them that you’re credit-worthy, and one of the key elements of a successful loan package is the business plan. Your business plan shows where your company has been and where it is going in terms of sales growth, business opportunities and more. Here’s what that plan needs to include:
• Business description – A few paragraphs that explain what you do, including a brief description of your key products and services, an overview of your industry, and a sentence or two about each of the key members of your management team.
• Historical financials – Three years of historical financials (Profit & Loss Statement, Balance Sheet and Statement of Cash Flow).
• High-level sales/marketing plan – This needs to include a detailed 3- to 5-year sales forecast by major product lines that shows projected sales units, average sales price, average costs, and average gross profit per unit sold...and narrative that explains how you’ll make it happen.
How does your projected growth compare to your industry’s projected growth? How will you achieve your projected sales growth? For example, do you plan to introduce new products, find new markets for existing products, implement new processes that will improve profitability, or what?
What actions will you take to support the projected sales volume? How will this sales volume impact your working capital requirements, staffing, production capacity, vendor relationships and other infrastructure issues?
Projected financials – Three to five years (depending on the desired loan length) of projected financials based on this sales/marketing plan, all presented on a quarterly basis for each year. In addition to the Profit & Loss Statement and Balance Sheet, this includes:
• Operating expenses with labor build-ups by department. If you’re saying that you’ll have four years of 8% year-over-year growth, they’ll want to see what type of staffing you’ll need to support it.
• Debt and debt payments needed to support this growth.
• Capital expense budget outlining projected capital expenditures by year.
• Statement of Cash Flow that ties all of this together.
Need help putting together a business plan that includes everything investors and bankers want to see? Give me a call! As your part-time CFO this is one of the many services I provide.