Is Going Direct Really Cheaper Than A Broker Or Price Comparison For Small Business Insurance?

The UK media is currently awash with advertising slogans from direct commercial insurance companies targeting small business owners in an attempt to make them switch their provider of business insurance.

‘Get 12 months cover for the price of ten’ and ‘You won’t find us on price comparison websites’ are typical of the slogans emanating from these companies, in a language more akin to the selling of car insurance than the traditional professional and almost stoic approach to the selling of business insurance cover.

In the current recession, price has become the determining factor in winning the war of market share for all goods and services and insurance is no exception. Prudent small businessmen and women are looking to cut costs in all areas of their business and the large direct insurance companies are well aware of this.

The large insurers are also aware that the UK market has over five million small businesses of which a fifth are sole traders, self-employed and people working from home, many of whom are familiar with purchasing their personal insurance direct with the provider, either by phone or on the Internet.

There are three types of provider in the current market for business insurance in the UK.

Intermediaries such as insurance brokers and agents, price comparison sites and direct commercial and business insurers.

Each has their own advantage and disadvantages, however whether one distribution channel is cheaper than another is often a subjective view from a particular trade, or dependent upon factors many of which cannot be quantified in price.

Direct Insurance companies claim to be able to offer cheaper polices because the cut out the costs of the middleman. It is certainly true that direct insurers do not have to pay an intermediary for the cost of the lead or introduction, however it is questionable whether this cost saving is actually reflected in the prices offered to the public.

Certainly there are economies of scale to be made by centralising the life-cycle of a policy from sales point to claim and renewal, however all those functions that are performed by an intermediary still have to be carried out in-house by the direct company and these have a cost.

Many large composite insurers often have distinct direct divisions with their own target market and premium rates. The same company may also have a broker or intermediary division or channel.

It is quite often the case that a large broker with a large book of business of, for example, small builders liability, will receive much more preferential rates then the same companies direct channel, because that insurance company wishes to retain that brokers clients.

Commercial Insurance brokers then are often able to offer preferential rates because they have more flexible schemes and arrangements than the direct channel.

One of the main benefits of using an insurance broker or intermediary in purchasing commercial insurance for small business, cannot be quantified in price and is worth the commission or fee that they may charge. That is advice, market and product information and knowledge, access to various markets such as Lloyds and some human help if the worst happens to a business and a claim is needed.

A commercial or business insurance broker is often able to negotiate far better claims settlements than if an individual were to deal direct with the insurer. The main reason for this is once again the insurer wishes to retain that brokers share of the total risk pool and will often pay out to a broker on an ex-gratia basis. This cost of this service is not quantifiable at the quote stage where small business cover may well just be valued for the price paid or the covers bought.

The third major way in which small business owners can purchase cover is by visiting a price comparison website. All the major UK comparison sites have recently begun to offer online cover aimed particularly at the small business sector, with under 50 employees. This is in direct competition with the direct insurers for television and media advertising space, aimed in particular at self-employed tradesmen and women who require business liability insurance and perhaps commercial van cover.

The comparison price proposition is that they can compare the market or at least a small section of it, to find the cheapest business insurance. They often do not provide any assistance in the purchasing decision-making process and the reality often is, that the cheapest commercial and small business insurance can be found in one of the other distribution channels.

It is therefore important that a small businessman shops around and takes some time to compare offerings including premiums, covers and services from all three sales channels. Prices tend to vary immensely by trade across the direct, broker and comparison markets and often it is a case of finding the provider or supplier who is the industry leader for a particular business type or trade in order to make large savings.

7 Tips For Selecting the Best Small Business Brokers to Sell Your Business

Are you thinking about selling your business? Have you ever gone through the process before? Are you confidant that you can do it yourself? Where would your time be better spent, running your business at peak performance while trying to sell it, or focused on the advertising campaign, networking, negotiating, and coordinating the closure of the sale of your business? Maybe you should consider doing what you do best, running the business, and search out small business brokers and let them do what they do best, sell businesses. If you go that route, here are 7 tips to choosing a business broker that makes sense for you.

1. Don’t get lost in the shuffle

You want your broker to have a proven record and a great reputation but you don’t want the organization to be so big that your deal is passed off to a junior staffer. You want the active involvement of the principals.

2. Do your due diligence

You’re about to engage the services of someone that is going to have a big impact on your financial life. Make sure you are comfortable with the relationship. Check with the International Business Brokers Association and see if your broker is a member in good standing. Follow up on the references provided and determine just how satisfied past clients are. Check with your local better business bureau and see if there are any unresolved complaints.

3. Use a specialist

Real estate agents and other professionals sometimes hold themselves out as business brokers on a part time basis. You want someone who makes their entire living selling businesses full time. Preferably somebody who has experience in your particular industry and someone who can point to successful sales they have made for your competitors.

4. Avoid heavy up front fee structures

Typically a business broker will charge between 10% and 15% of the sale price as a fee. While it is customary for them to ask for some up front fees to initiate the process, avoid those brokers who are looking for greater than a third. Also make sure that the up front fee is deductible from the sales fee when the business sells. Following this advice will save you from having to invest a ton of cash before you actually sell the business.

5. Only contract for the business selling services

Smaller business brokers will offer accounting and legal services that you will need during closing for an additional fee and these services are typically outsourced by the broker. It may be to your advantage to contract for those services directly leaving the broker with only the requirement to focus on the selling process and not generating add on fees.

6. Share your expectations

Before you select a broker you should have at least a general idea of what you want to accomplish by selling your business. You should have a rough valuation number and you should know if you want a cash sale or stock. Share this with the broker and see if he agrees with your plan. While there probably will be differences in valuation, your broker should be in tune with the rest of your objectives. If he’s reluctant or believes that it will be difficult to achieve your goals, find another broker.

7. Keep the whole process confidential

The last thing you want to do is let the word that you are seeking a business broker or that you are in negotiations with a buyer leak out. Once it becomes common knowledge that you are selling, your relationships with your employees, customers, vendors and bankers could be adversely affected. Have an exit plan for after the sale that includes sharing the news with all those listed above.

Using business brokers to help sell a business is usually the smart route to take for any business of substance. You want your organization to have as much “curb appeal” as possible during the process and that means you should be focusing your time on optimizing the business not chasing down buyers.

Business Solutions – The Business Owner and the Internet

Small medium sized business owners and directors always seek quick and cost effective solutions to their problems; however, from time to time some problems are encountered in achieving this goal.

Some issues may be easy to fix and may be a ‘pleasant’ experience, such as addressing business growth, where to invest excess cash and so on. Others cause much concern, perhaps because of their complexity, urgency or their potential long term adverse impact on the business.

Understandably it is not uncommon to find that small business owners are technically capable in their area of expertise, but when challenged to find solutions to business related problems outside of that area they must turn to experts or professionals in other fields.

Particularly in a start up company the accountant, solicitor or bank manager may be a source of help. However, it may be found that not all answers are available from that source. So to whom does the business owner turn? It may be trade associations, chambers of commerce, network groups, other entrepreneurs, friends and so on.

All may offer some advice but this may be an uncoordinated approach and costly in terms of time. This source of knowledge may be of significant value and should not be totally overlooked. However, start-up companies and small and medium sized business owners usually seek business solutions immediately. After all they do wish to succeed in their business venture and issues that jeopardize that success require resolution at the earliest opportunity.

Consequently any delay in securing help from independent bodies or friends may be perceived as aggravating the problem to be overcome.

Unfortunately not all problems can be resolved quickly.

Some, perhaps many, business problems may be caused through a lack of planning or maybe lack of knowledge and understanding on the part of the small medium business owner. This may require investigation into the root causes of the problem in question, before action can be taken rather than develop a solution only to counter the ‘effect’ of the problem.

Also in the business world, the level of government ‘red tape’ may be burdensome to the business owner or director, and adherence to all aspects of their legal obligations is usually mandatory. However, governmental influence may delay resolution of problems, and ignorance of the law is not be an excuse should serious consequences arise through non-compliance.

In addition should cash constraints exist within the business, it may not be possible to ‘buy in’ the required level of expertise. This may burden the small medium sized business owner with gaining knowledge or learning skills alien to himself.

Today the business owner without adequate or reliable access to, knowledge of leadership, business management, business development, marketing, accounting, financial management, IT, business planning, ecommerce, employee relations and so on is seriously disadvantaged.

What alternative sources of business advice are available?

The internet may provide the help needed to overcome some if not all of these gaps in the business owners’ knowledge. This solution may not be satisfactory to everyone; the fear, uncertainty, reluctance in using the internet may still be an overwhelming barrier to some, but without doubt access to knowledge is much easier using this medium.

Understandably the early content based websites were dedicated to providing knowledge much biased towards sharing internet technology with others. This situation continues to change with many webmasters now committed to providing content for all niche areas, including those applicable to the small business owner.

Whether the business owner is in ‘fire fighting’ mode or being proactive in planning to avoid problems help and advice can now be found on the internet.

Up to date, easy to read newsletters on specific matters of interest, such as general business matters, taxation, are freely available; together with articles and e-books are available to help solve or prevent business problems.

This fount of knowledge continues to expand and many experts and entrepreneurs within the business sector continue to offer visitors to their websites valued help and assistance.

How should the business owner react to this plethora of knowledge?

Be positive.

The owner should continually research for sites that offer the business content that is being sought and is presented in an acceptable style. Actively participate in forums if available; this will raise awareness of your concern and afford the opportunity to other site participants to offer their advice freely in the matter.

Use the content on the internet as a valued tool in resourcing solutions to your business problems. Remember it is available at all times, easy to access and very cost effective.

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