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Should Franchises Purchase Business Insurance?

For a business that is looking to expand, franchising is a tempting option. It allows for rapid growth while upper management can control the product and basic business model. Franchising requires a lot more preparation than simply collecting royalties, however. One of the most overlooked areas for new franchises is expanding their business insurance.

Many business owners are surprised to learn that they need to expand their insurance. After all, one of the main selling points of franchising is that the owners of the franchise are supposed to assume some of the risks. What many people in the corporate office fail to understand is that, even though their individual locations are all individually insured, the company itself can be held liable for anything linked to its general products or services.

One of the most common examples of this are restaurant chains that need to protect themselves from liability. Many small corporations assume that, if there was an incident involving food poisoning, the franchise owner’s insurance would kick in.  While this is true for an isolated incident, if the defective product came from the manufacturing facilities of the franchise corporation, that corporation could be held liable. Retail shops need to have coverage that will protect them in the event that a product line is defective and/or causes injury. Service-based business should insure themselves against defective equipment.

At the very least, this calls for a significant increase in the amount of coverage that a business has. A policy that once covered possible damages to several dozen or hundred customers will now need to cover millions.  It may also be a good idea to look for an umbrella policy that can provide protection against the public relations problems that would result from such an incident.

While shopping around for an umbrella policy, a new franchise corporation may also want to consider increasing their coverage against lawsuits of any type. Increasing the number of locations a business has means that its profile will expand. This almost always leads to an increase in the number of people who will try to sue the business in the hopes of making a quick buck. A growing business is a target for scam artists as well.

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