3. Risk Management Implications
As we noted earlier, most small-business owners who responded to our survey indicated some growth plans for 2017. This is important, given that the Small Business & Entrepreneurship Council notes that 34.3 percent of US workers are employed by a business with fewer than 100 workers. Clearly, much of the nation's job growth is tied to the ability of small businesses to create new jobs.
But there's a downside to growth, too. Small-business owners expose themselves to added liability whenever they expand. Here's a look at how each of the growth metrics we asked about will affect risk exposure in 2017.
- Hiring an Employee: One-third of our respondents plan to bring a new employee on board next year. While this is an excellent indicator of overall business health, it also means as many as 33 percent of small businesses will need to update their Workers' Compensation Insurance in 2017. This coverage can pay the bills when employees are injured on the job and is a legal requirement in most states.
- Moving to a New Location: More than one in five respondents (23 percent) plan on moving to a new office space in 2017. That suggests growth, whether the move is from a home office to a commercial building or from an existing office to a bigger one. Both General Liability Insurance and Commercial Property Insurance (often bundled together in a Business Owner's Policy) are tied to location, though, so anyone filling out a change-of-address form should update these policies with their agent.
- Offering a New Service: 30 percent of respondents plan to add a service in 2017. A savvy growth move, expanding service offerings can help attract new clients and increase revenue from existing clients. From a risk management perspective, updating Professional Liability Insurance is crucial because new services may come with new risks. The update may not change much about your policy or its price, but it's a good way to make sure you're still covered as your business evolves.
- Selling a New Product: 34 percent of respondents, or just over one in three, plan to introduce a new product next year. As part of this expansion, business owners may need to update the Product Liability Insurance portion of their General Liability Insurance. That's the part of the policy that offers protection if a product injures a customer or makes them ill.
- Buying New Equipment or Furniture: A whopping 58 percent of our respondents plan to buy new gear in 2017. If those items are valuable, business owners should verify that their Business Owner's Policy or Commercial Property Insurance policy has adequate limits to cover them.
- No Plans for Growth in 2017: For the 18 percent of business owners who don't plan on any of the growth we asked about, their current small business insurance will likely be sufficient – unless they're among the 75 percent of businesses that are underinsured. Bottom line: if you're doing other housekeeping work at year end, verifying that your insurance is up to date is a smart move.
Point of Interest 1: The Gender Gap in Small Business
The pay gap for women employees is no secret: for every dollar earned by fulltime male employees, their female counterparts earn 80 cents. Discouragingly, we found that the gap also exists between women and men who own businesses.
The women we surveyed were three times more likely than the men to earn less than $25,000 per year: while only three percent of men reported earnings in this category, nine percent of women did. And men were twice as likely as women to report revenue in the highest bracket ($150,000+): 14 percent of men-owned businesses fell into this range, compared with just seven percent women-owned firms.
Expanding the view a bit, we see an inverse distribution by gender in the top two and bottom two revenue quintiles. While 32 percent of women-owned businesses and 19 percent of men-owned businesses earn less than $50,000 annually, 34 percent of men-owned businesses and 20 percent of women-owned businesses earn more than $100,000 annually.
Income Breakdown: Women-Owned vs. Men-Owned Businesses
Could this income disparity be one reason 25 percent of women business owners are planning not to expand in 2017? We talked with some experts to get their take.
Why Do Women Earn Less as Business Owners?
We discovered several variables that could explain the revenue disparity in small business, including…
- The types of businesses women tend to own.
- The business goals women tend to set.
- The ways women tend to approach risk.
According to a 2015 study by Experian, women are more likely to own businesses like beauty shops and personal services, while men are more likely to own businesses such as general contracting and real estate. The former have naturally lower revenue ceilings. In addition, 48.3 percent of small businesses run by women are home-based, compared with 44.8 percent for men.
"There are businesses that don't want to grow too quickly, particularly solopreneurships, where they need to be able to support growth with a little bit more purpose and timing," said one woman business owner we spoke to, who preferred to remain anonymous. "I've only ever planned to be a company of one."
Women's willingness to embrace risk may be another factor at play. An article in the Harvard Business Review by Doug Sundheim (@DougSundheim), president of business consulting firm The Sundheim Group, mentioned that studies show men are more likely to take risks than women, particularly when under stress. However, when we spoke to Sundheim, he said this could be because we are only thinking about risk in one way.
"We often define 'risk taking' as something that is a financial or physical risk," says Sundheim. "But I think in this day and age there are other risks that we have to think about, like reputational risk or relational risk. My gut sense tells me that if we broaden the framework that we're thinking about with regards to risk, that women are very well suited to managing some of these other risks that we don't think so much about."
Angelique Pivoine (@2BeAngelique) owns the marketing and PR consulting firm Good Thinking Agency (@itsgoodthinking) and says she has found that a lot of her women clients are more reluctant than their male counterparts to plan for business growth. She attributes this partly to the desire for work / life balance, as well as reluctance to cede control by hiring an employee.
"You can keep your work / life balance and still grow your business, provided that you're willing to delegate!" says Pivoine. "However, most female business owners tend to insist on doing everything themselves."
A report from the National Women's Business Council supports this claim, noting that many women business owners view hiring new staff as "highly risky." So while the women we surveyed are less likely to have growth planned for 2017, those plans could be a conscious choice rather than an indicator that the business is struggling.
Point of Interest 2: Why Are New Services Less Popular among Rural Businesses?
The other data point that stood out was the divide between urban and rural business owners who plan to offer a new service next year. While urban businesses accounted for 25 percent of our total respondents, they made up 30 percent of the group that planned to offer a new service. Rural businesses, on the other hand, were 16 percent of our overall respondents but just 11 percent of those who planned to expand their service offerings.
That means urban business owners are 1.7 times more likely than rural business owners to have plans for launching new services in 2017.