How to Declare Your Small Business’s Annual Revenues and Why It Matters

Filling out a business insurance application to get coverage for your small business or profession involves answering questions about yourself or your company and your services and products.

Its purpose is to provide detailed information about your business, operations, and the associated risks you face to an insurance company. It helps insurance companies evaluate the potential risks involved in insuring you, determines the appropriate amount of coverage you need, and the annual premium you are charged.

Completing a thorough and accurate business insurance application is crucial for obtaining appropriate coverage and ensuring your business’s specific risks are properly addressed. By providing accurate and up-to-date information and disclosing all relevant details helps avoid potential issues with the policy or if you need to file an insurance claim down the line.

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Among the questions a business insurance application asks is what your annual and projected revenue is.

Why Do Insurance Providers Want to Know Your Small Business’s Revenue?

Insurance companies ask for a small business’s annual and projected revenue on an insurance application to assess the scale and potential risks associated with your company’s operations. 

There are a few reasons why insurance companies consider this information:

Risk Evaluation

The annual and projected revenue provides insights into the size and scope of your business. Insurance companies use this information to assess the potential risks associated with your operations. For example, a higher revenue may indicate a larger scale of operations, which may involve more significant risks and potential liability exposures.

Premium Calculation

The revenue figure is used in the premium calculation process. Insurance premiums are typically based on factors such as the size of the business, its revenue, and the specific risks involved. Companies with high revenues may pay higher premiums, as they may have more considerable assets to protect and potentially face higher liability risks.

Coverage Adequacy

Your annual and projected revenue helps insurance providers determine whether the requested coverage limits are appropriate for what you do, as you may require higher coverage limits to protect your assets adequately.

Claims Assessment

If you file a claim, the information you provide in your application about revenue can be relevant in evaluating the extent of the loss you’ve suffered. It can help determine the amount payable under the policy.

Policy Underwriting

Insurance companies use revenue information to assess your business’s overall financial stability and viability. It provides insights into your capacity to fulfill your insurance obligations, pay the premium, and potentially affect the underwriting decision.

6 Ways for Determining Your Annual and Projected Revenue

Determining your annual and projected revenue involves analyzing your historical financial data, making informed estimates, and considering factors that may impact your income in the future. Here are six ways to do that:

1. Review Your Financial Records

Start by examining the business’s financial records, such as income statements, balance sheets, and sales records from previous years. This historical data can provide insights into past revenue trends and help establish a baseline for estimating future revenue.

2. Identify Your Sources of Revenue

How do you make money? It could be product sales, service fees, subscriptions, licensing, or any other revenue streams your business has. Categorize and evaluate each revenue source separately to understand its contribution to your overall revenue.

3. Analyze Market Trends

Consider the broader market conditions and trends in your industry that may impact your revenue. Research market reports, industry forecasts, and economic indicators to gain insights into the potential growth or decline of the market. Assess how these factors might affect the demand for your products or services.

4. Look to Your Sales Pipeline

Assess your current sales pipeline and prospects. What is the number of leads, conversion rates, and average deal sizes? This information can help you estimate your projected revenue from future sales. And leave nothing out of the equation. Consider any sales contracts or commitments that may influence your company’s revenue generation.

5. Consider Changes to Your Business

Just as you would when renewing an insurance policy, analyze what’s changed or changing in your business. Are you planning to expand? Do you have new product launches or changes in services forthcoming? Consider all of it when projecting revenue — factor in the potential impact of these initiatives on sales and market share.

6. Seek Expert Advice

If in doubt, reach out! Consult industry experts, business advisors, or accountants who can guide you and provide insights based on their knowledge and experience in your industry. They may help refine your revenue projections and provide a more accurate assessment.

When disclosing your projected revenue, you’re essentially providing a ballpark figure. However, that digit should still reflect the anticipated growth of your business so an insurance company can accurately price your premium. 

It is becoming common practice for insurers to validate the revenues reported in an insurance application. At any time during your policy’s term or when renewing a policy, an insurance provider has the right to request a copy of your financials and property inspections to confirm your policy is being rated correctly.

What Happens If Your Revenue Declaration Is Incorrect?

Refrain from underestimating or intentionally misrepresenting your revenue, or it could lead to problems, including coverage gaps and potential disputes after filing a claim, or your insurance provider may cancel your policy.

Underreporting your revenue to save money on the price of a policy is not a wise way to go. If it is discovered that your actual income is higher than what you stated it was, you could also face a significant increase in the cost of your policy midterm or when renewing it.

Among the ways to avoid seeing the cost of your business insurance premium spike is disclosing your current and anticipated revenue as accurately as possible.

Getting the Protection You Need at a Fair Price

Zensurance specializes in helping Canadian self-employed professionals and small business owners get the customized, low-cost business insurance coverage they need.

Fill out our online application for a free quote. If you have questions about how to declare your annual and projected revenue, let us know. We’re only a click or call away.