5 Worst Nightmares
for a Trade Business Owner How you can protect yourself from them There are many risks that you face when working in the trades, and even more when you own a trades business. As the owner you’re not just worried about yourself, but you’re also responsible for your team and your clients.
For many tradies this is seen as a risk of being a business owner, but you can protect yourself financially.
Trade Credit Insurance
Trade credit insurance protects you against losses caused by a client going into administration or bankruptcy etc.
As business owners we can take the attitude of “that’s how it is” and live with those risks, or we can try to protect ourselves against them.
In the event that one of your clients fails, the insurer will pay you the bulk of the outstanding amount.
We’ve put together a list of five nightmare scenarios for any trade business owner. In some cases they are real-life stories from our own clients.
The insurer will still try to recover money through the administration process, and if they do happen to recover additional funds they may share some of that with you, in order to achieve a full recovery for you.
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The main downside to trade credit insurance is its cost. At the very low end you’re looking at an annual premium of around $5k, and for a business with revenue of around $1 million you can expect to pay at least $10k.
A large client goes under without paying you Your work results in the death of a third party One of your team suffers a major injury at work A new home you are building is destroyed You suffer an injury that leaves you unable to work
1. A large client goes under without paying you
So it’s not cheap, but if we look at that electrician of ours who lost $150k on one job, no doubt they would have happily paid the $10k premium if they knew.
We’ve heard so many horror stories from subcontractors who’ve had a builder go into administration owning tens or hundreds of thousands of dollars.
Whether or not you should have trade credit insurance really depends on the types of clients you’re dealing with. If you deal with a lot of smaller clients, especially domestic clients, you’re not going to get any benefit from it.
An electrical contractor client of ours had a company fail whilst owing him $150k. For a large electrical contractor that may be easier to swallow, but for a bloke with a handful of staff it was a massive hit.
But if you do a lot of work for a small number of clients, leaving you with large exposures to single companies, then it’s certainly worth considering.
As in many of these cases, once the administration and liquidation period is over, there is nothing left for the subcontractors and other unsecured creditors. The damage caused goes far beyond the money lost. The stress and impact on your mental health can sometimes outweigh the financial impact.
Try putting it this way… What would happen if one of your top three clients failed and couldn’t pay you? If it wouldn’t bother you, then you might not need the cover. But if it meant having to put off some staff, or having to re-mortgage your house to pay the bills, then you probably do.
2020 June Issue | 9
