For new and aspiring small business owners, becoming a franchisee could be the perfect stepping stone for your entrepreneurial journey. 

Imagine having a well-known brand name, a proven business model, comprehensive training, ongoing support, bulk discounts on supplies and marketing materials, national advertising campaigns, more accessible financing, and an established customer base from the get-go. It’s a great option if you’re looking to be your own boss with the security and benefits of a proven system.

But just like any business, a franchise isn’t immune to costly unforeseen incidents, and even well-oiled machines can develop a squeaky wheel. That’s why protecting your financial well-being and reputation with a comprehensive franchise insurance policy is vital.

Liability insurance for Canadian franchisees

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Zensurance - Small Business Insurance Guide

What Is Franchise Insurance?

Franchise insurance is part of your business’s risk mitigation and business continuity strategy. It covers a wide range of potential issues, such as property damage, third-party bodily injury claims, cyber-attacks, and lost income due to unexpected closures following an accident or incident.

Although your franchisor may offer liability insurance and require you to have coverage, there could be gaps in the policies they provide or insufficient coverage limits

That’s why exploring your options and finding coverage that adequately covers your risks is worthwhile so you can focus on what you do best — delighting your customers and growing your profit margin.

What Risks Do Franchisees Face?

As with any business, owning a franchise comes with risks. 

Understanding these risks can help Canadian franchisees take steps to mitigate them and increase their chances of success. 

One significant risk franchisees or small business owners face is operating without business insurance. Without coverage, franchisees are on their own to shoulder the costs of a multitude of risks, such as:

Legal Liability

The franchisor and franchisee can be held responsible for any damages or injuries on their premises or as a result of their products or services, such as customer slips and falls or third-party property damage. Such incidents can lead to incredibly expensive claims or lawsuits and settlements.

Financial Losses

Business interruptions from unexpected events or accidents, such as fire, flood, cyber-attack, or equipment or machinery breakdowns, can sideline your business. The cost of dealing with them can quickly run into hundreds of thousands of dollars.

Loss of Assets

A franchisee may face losses due to damage to or theft of property or equipment, which can impact the business’s financial stability and continuity.

Reputational Damage

Your reputation with customers and partners means everything. Franchisees face the risk of reputational damage due to unexpected events like lawsuits that can result in loss of customers and revenue. For instance, cybersecurity threats such as data breaches or cyber-attacks can harm the franchise’s reputation, resulting in significant financial losses.

Non-Compliance Penalties

Franchisees must pay ongoing fees to the franchisor, including royalties and marketing fees, and are subject to penalties, fines, or termination if they fail to comply. Furthermore, Canadian franchisees must follow all relevant federal, provincial, and municipal regulations, with non-compliance resulting in significant financial consequences.

What Does a Franchise Insurance Policy Include?

Franchise insurance is industry-specific. Therefore, it is custom-designed to protect franchisees and franchisors from the risks of operating a franchise with a comprehensive policy that addresses multiple risks.

Here’s a quick rundown of the essential coverages many small business owners need:

General liability insurance to cover third-party bodily injury and third-party property damage claims arising from your operations. It also usually includes tenant legal liability coverage, product liability insurance, and coverage for claims like defamation.

Commercial property insurance safeguards your physical space, business contents, and improvements against various perils like fire, water damage, theft, vandalism, and damage caused by natural disasters.

Equipment breakdown insurance provides financial protection for repairs or replacements of malfunctioning equipment like refrigerators, freezers, and your property’s HVAC system due to internal mechanical or electrical failures.

Errors and omissions (E&O) insurance, also called professional liability insurance, mitigates risks associated with professional negligence claims, misrepresentation, errors, or failure to deliver services as promised.

Cyber liability insurance provides vital support in the event of cyber-attacks or data breaches, including paying for legal advice, system restoration, credit monitoring, and coverage for losses sustained because of a systems outage following a cyber incident.

Your business may require other types of insurance to create a comprehensive policy. Speak to a licensed Zensurance broker about the challenges your small business faces.

How to Get Low-Cost Franchise Insurance Today

Are you struggling to find the right franchise insurance coverage? Zensurance can help. We understand that franchisees have unique needs, and we help thousands of Canadian business owners like you find affordable coverage.

Here’s what makes Zensurance the ideal business insurance partner for your franchise business:

  • Fast and Easy: Our online application allows you to get a free quote within minutes without the hassle of lengthy calls or paperwork.
  • More Choice: We have partnered with over 50 Canadian insurance providers to ensure you get the best coverage at the most competitive price.
  • Customized Solutions: Our experienced brokers will tailor your policy to your franchise’s specific risks so you only pay for what you need.
  • Peace of Mind: A customized policy from Zensurance allows you to focus on running your business, knowing you are protected from unexpected events.

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About the Author: Alexandria Anthony

Alexandria Anthony is the Team Lead, Property & Hospitality, at Zensurance.