As a business owner, there are many expenses you must consider in order to keep your company running smoothly. One of the most important expenses is insurance. Insurance can protect you from unexpected events that could potentially devastate your business. However, it can also be costly. So, what percentage of business income should go to insurance?
The answer to this question is not straightforward. The percentage of business income that should go to insurance depends on several factors, including the size of your business, the industry you are in, and the type of coverage you need. In this article, we will explore these factors and provide you with some guidance on how much you should budget for insurance.
Size of Your Business
The size of your business is one of the most important factors to consider when determining how much you should budget for insurance. Generally, the larger your business is, the more insurance coverage you will need. This is because larger businesses typically have more employees, more property, and more customers. Here are some things to consider:
- Small businesses with fewer than 10 employees can expect to pay around $400 to $600 per year for general liability insurance.
- Mid-sized businesses with 10 to 50 employees can expect to pay around $1,000 to $3,000 per year for general liability insurance.
- Large businesses with over 50 employees can expect to pay around $5,000 to $10,000 per year for general liability insurance.
Industry
The industry you are in is also an important factor to consider when determining how much you should budget for insurance. Some industries are more risky than others, and therefore require more coverage. For example, a construction company will require more insurance coverage than a consulting firm. Here are some things to consider:
- Construction companies can expect to pay around 2% to 5% of their total revenue on insurance.
- Consulting firms can expect to pay around 1% to 2% of their total revenue on insurance.
- Retail businesses can expect to pay around 0.5% to 1% of their total revenue on insurance.
Type of Coverage
The type of coverage you need is also an important factor to consider when determining how much you should budget for insurance. There are many different types of insurance coverage available, including general liability insurance, workers’ compensation insurance, and cyber liability insurance. Here are some things to consider:
- General liability insurance typically costs between $400 and $600 per year for small businesses.
- Workers’ compensation insurance typically costs around 1% to 2% of your total payroll.
- Cyber liability insurance typically costs around $1,000 to $3,000 per year for small businesses.
Conclusion
So, what percentage of business income should go to insurance? As you can see, there is no one-size-fits-all answer to this question. The percentage of business income that should go to insurance depends on several factors, including the size of your business, the industry you are in, and the type of coverage you need. However, as a general rule of thumb, most businesses should plan to spend between 1% and 5% of their total revenue on insurance. By doing so, you can protect your business from unexpected events that could potentially destroy everything you have worked so hard to build.