INSURANCE FOR BOOTSTRAPPERS John Neill Friday, April 6, 2007

RISK BAD THINGS CAN HAPPEN Focus on those events that can bankrupt your business

RISK MANAGEMENT The three ways to manage RISK AVOID RISK MANAGE RISK TRANSFER RISK

BASIC INSURANCE NEEDS GENERAL LIABILITY INSURANCE PROPERTY INSURANCE WORKERS’ COMPENSATION OTHER – LIFE, HEALTH, TRANSIT

COMMERCIAL GENERAL LIABILITY PURPOSE: To Cover the duty you owe (by law) to the Public and customers for: Condition of Premises Conduct of Operations Quality and Use of Products Negligence and the Prudent Person Rule – Tort Liability

COMMERCIAL GENERAL LIABILITY Covers Bodily Injury and damage to Property of Others – due to your negligence - no coverage for intentional or criminal acts Cost is based on: What you do – nature of the business How much you do – size of Operation Limits of Insurance you select

PROPERTY INSURANCE PURPOSE: To cover the repair or replacement of Buildings, Contents, Property of others, Cash flow by purchasing insurance against loss by: Fire, Lightning Theft Wind or Hail, Water damage Collapse, employee dishonesty, etc Will not cover – wear & tear, war, nuclear contamination, earthquake, flood

PROPERTY INSURANCE Cost based on: Size, location, construction of premises Type of Contents Fire and burglar protection Deductibles

WORKERS’ COMPENSATION PURPOSE: To cover employers legal obligation to employees for medical expense and loss of income, due to a work related illness or accident. Who is an “employee” ? Required by Law (each State is different) Absolute obligation – negligence not an issue

WORKERS’ COMPENSATION Cost based on: Type of Business Size of Payroll Job duties State (or States) of operation

OTHER INSURANCE LIFE INSURANCE - Key Person, fund buy-sell, cover a loan TRANSIT OR OTHER LOCATIONS, AUTOS – Shipping, storage, client locations PROFESSIONAL LIABILITY, ERRORS AND OMMISSIONS REQUIREMENTS FROM OTHERS – Banks, Landlords, customers

GENERAL DO’S AND DON’T’S REMEMBER: Insurance is the LEAST desirable and most expensive Risk Management choice. Insurance needs evolve with the business At first – buy only what you absolutely need Modify as you grow and change Control costs by using deductibles – don’t insure the “small stuff”

CASE STUDY NEW BUSINESS – Coffee & Tea Shop LLC – Tim, Trish, and Tom “THE THREE TEES” LLC – Tim, Trish, and Tom Specialize in Organic Herbal Teas and Coffees Purchasing $500,000 Building (3000 sq. ft.), and installing $100,000 fixtures and Equip. (borrowed $550,000) Will have 6 employees - $200,000 annual payroll, project $800,000 gross sales Have $50,000 cash reserve