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Cut Business Expenses Before Eliminating
Your Insurance

In these challenging economic times, companies of all sizes are looking for ways to cut business expenses.

A recent fire in the Grandview Heights suburb near Columbus, Ohio, underscores the importance of maintaining your business insurance coverage, even when sales are flat or declining.

Nearly two-dozen small businesses were destroyed when flames raced across the attic of the two-story building. While most tenants were covered for fire, one reportedly had cancelled its insurance to reduce business expenses during the economic downturn. It turned out to be a tragic mistake.

“Insurance covers the ‘what if’ situations in life,” says Nationwide agent John Holroyd, owner of the John Holroyd Agency in Warminster, Pa. “No one ever plans to be the victim of a fire or an accident. Business insurance provides the support you need to rebuild your company if the unthinkable does occur. Without it, you could be out of business permanently.”

A common misconception

Business owners are often tempted to reduce expenses by renegotiating or lowering business insurance coverage based on a perceived loss of value due to changes in the market. “Unfortunately, that strategy is really misleading,” says Holroyd. “The rule of thumb is to insure for replacement cost, not the current market value. Replacement of buildings and equipment is usually higher than the market value at the time of loss.”

While most insurance contracts include a requirement to insure to the full replacement cost value, if you choose to insure for a lower value, you may be required to pay for part of the cost to repair or replace what was damaged.

Holroyd speaks from experience. “We recently had a customer call to lower coverage on his restaurant,” he recalls. “We advised him not to do that, and we increased his deductible, leaving the coverage the same,” he added. “The client was fortunate because two weeks later he had a power surge and outage. We covered the damages and paid for lost income while he was shut down. It could have put him out of business.”

Tips for Cutting Business Expenses

Don’t cut insurance from your budget to make ends meet. Here are other ways to cut business expenses that won’t leave you vulnerable.

Lower your overhead

1. Ask your landlord to renegotiate your lease. Be honest if your business is struggling and you need to reduce business expenses. Any good landlord in a struggling economy would rather have a tenant paying a little less than face the void of an empty storefront.

2. Consider subletting or leasing your unused space. If you do, be sure to talk to your insurance agent - changes to your property coverage may be necessary.

3. Switch to an office suite, and share copiers, meeting rooms and a receptionist with other small business owners to cut business expenses.

4. Buy used office furniture, computers and phones as needed. The best deals are often found online.

5. Place your lights on a timer and change to a programmable thermostat to save energy.

6. Turn off equipment when not in use. Sometimes the easiest ways to reduce business expenses are the most effective.

7. Switch to a cheaper internet service and telephone provider. Often you can find these services bundled at a substantial savings.

Simplify staffing

8. Reduce your staff hours – or your headcount. Unfortunately, this difficult business cost reduction option should come before failing to make an insurance payment.

9. Hire independent contractors or temporary workers as needed.

10. Go to a four-day workweek to reduce business expenses.

11. Outsource your payroll, benefits and HR.

12. Consider a virtual assistant or answering service to reduce payroll.

Adjust your advertising

13. Switch your advertising efforts to new media, if that’s where your customers are. It can be cheaper to advertise online, and costs only your time to establish a presence on popular sites such as Facebook, Twitter and LinkedIn.

14. If you have a website, be sure to let people know the address. Put your website or email address on anything printed, such as letterhead, business cards and ads in the paper or phone book.

15. Develop an e-newsletter to stay in touch with your clients. It’s usually much cheaper than producing printed pieces.

16. Scour your mailing list to remove duplicate names and bad addresses that cost you unnecessary dollars.

Ask your insurance agent how to reduce insurance-related business expenses

17. You may be able to get lower premiums for a higher deductible. A high deductible is cheaper than losing your business if you face an uninsured accident, damage, or other event.

18. Ask if your insurance company offers monthly payment plans that could help you spread out the expense.

19. Find out if there are any groups or associations you can join to take advantage of their lower group premiums.

20. Take advantage of the free loss control resources on Natiowide.com, including the Risk Assessment Tool and Loss Control Safety Bulletins.