Bookkeeping businesses provide a range of services to individuals and companies. For example, the firm tracks client finances, offers advice for their financial health, and files their taxes appropriately. Between offering advice and figuring out taxes, a firm has several liability exposures that are essential to protect the bookkeeping business from financial harm if a loss occurs.

What Are Some Risks for an Accounting Business?

Some risks that bookkeeping businesses face are:

• Flawed audits and reviews
• Theft or loss of valuable business papers
• Hacked networks and servers
• Employee dishonesty and theft
• Fire damage to the insured’s location and property

Although the above list is a brief overview of potential risks that accounting services may face, the list reveals the need for a balanced, all-covering bookkeeper business owner’s policy (BOP) for protection. A good insurance policy protects the company from encountering financial losses for claims.

Flawed Audits and Reviews

Attention to detail and accuracy are vitally important for a bookkeeping business. However, introducing an error or omission can result in significant harm to the client. For example, filing incorrect tax returns means the client could be subject to fines from the Internal Revenue Service (IRS). Additionally, clients can experience monetary losses if the firm incorrectly gives advice or mishandles the balancing of a budget.

Theft or Loss of Valuable Paperwork

A bookkeeping business accumulates a considerable amount of paperwork through normal operations. For example, contracts, client tax documents, client financial documents, and employee information are all examples of sensitive paperwork kept by the firm. Therefore, lost or stolen paperwork presents a considerable risk to both the firm and its clients.

Hacked Networks

Cyber security is essential today. As more information and paperwork are saved virtually, the need for good internet security is vitally important. For example, a bookkeeping business faces a risk of network hacking which can lead to information theft or deletion.

Employee Dishonesty

Employees work with sensitive client information. As a result, a dishonest employee may steal client funds and sensitive material. A bookkeeping business helps prevent this crime by properly vetting new employees and having checks and balances for accountability. 

Fire Damage

Fire is a significant risk to a bookkeeping business since fire damage to the building, equipment, and paperwork is expensive and challenging to replace. Many firms have a large quantity of books and files stored on-site that should be insured.

What Types of Insurance Should a Bookkeeping Business Consider?

Accidents are unpredictable and often catch a business by surprise. For that reason, it is crucial to take preventative measures and protect the company from financial loss by gearing up with a robust insurance policy.

The policies a bookkeeping business should consider are:

• Professional liability
• Inland marine
• Cyber liability
• Crime insurance
• Property insurance

Professional Liability Insurance

Professional liability insurance, also known as errors & omissions insurance (E&O), offers coverage against a lawsuit for an error in their professional services. As such, accuracy is important for a bookkeeping business, and lawsuits arise when the bookkeeper or CPA makes mistakes or omissions that cause a client financial loss.

Professional liability insurance covers the cost of legal expenses for lawsuits involving:

• Malpractice
• Conflict of interest
• Flawed advice
• Negligence

Professional liability is, arguably, the most significant coverage for a bookkeeping business to have. However, suppose this policy is missing from a bookkeeper insurance portfolio. In that case, it leaves the business at great risk of financial hardships. Without insurance, the business will be responsible for paying all the legal fees associated with a professional liability lawsuit.

Inland Marine Insurance

An inland marine policy offers insurance to protect valuable paperwork. The specific name for this type of coverage is called Valuable Papers and Records. As the name suggests, the policy provides coverage for the value of the lost documents and the cost of replacing them.

For example, a bookkeeping business holds physical documents for a time. Fire, flood, and theft are hazards that can damage the paperwork. It is time-consuming and costly for a business to replace the paperwork, and insurance helps to alleviate the financial cost.

An inland marine policy covers physical papers and documents, but not documents that are stored electronically. See the cyber liability coverage below to learn more about how a bookkeeping business can protect its electronic data.

Additionally, an inland marine policy protects equipment that moves off-site to different locations with an Equipment Floater. For example, laptops and other mobile equipment used off-site needs coverage. An Equipment Floater follows the equipment wherever it goes.

Cyber Liability Insurance

Like an inland marine policy, a cyber liability policy offers coverage for sensitive documents and information. In this case, it protects digitally stored documents and data. Networks and servers are points of vulnerability. Hackers can steal information from unsecured networks or by gaining access to the servers.

A bookkeeping business should consider utilizing security measures to protect WIFI, servers, payment systems, and computers. Cyber insurance offers coverage for the cost of legal fees and settlement payments for claims arising from lost or stolen digital information.

Crime Insurance

Crime insurance pays for loss of money or data due to employee dishonesty or theft by another party. Bookkeeping companies may not have large amounts of cash on-site. However, they do hold a considerable amount of client information.

Employees may embezzle money or steal personal and private client information for exploitation. A company can use checks and balances to ensure accountability between employees; however, if a crime-related claim does occur, a crime policy helps shield the bookkeeping business from an extensive financial loss.

If a crime does occur and a customer’s money or information is stolen, this policy reimburses lost funds for:

• Embezzlement
• Fraud
• Robbery and theft
• Forgery

Property Insurance

A property insurance policy covers the premises and physical items owned by the bookkeeping company. Typical losses include fire, theft, water damage from leaking pipes, wind, or hail damage. A property insurance policy pays for either the replacement cost or the actual cash value of the lost items.

Generally, a replacement cost policy costs more because it covers buying and replacing new items. It does not consider the depreciation of items at the time of loss. For example, let’s assume that a chair in the office has an actual cash value of $50, accounting for depreciation. A fire damages this chair, but to replace it with a brand new one would cost $150. An actual cash value policy will pay a company $50 for the damaged chair, and a replacement cost policy will pay a company $150 to replace the chair.

Fire is a significant hazard to a bookkeeping company, especially if they have a large stock of books and equipment kept on-site. As you look at property insurance policies, it is essential to consider what it would cost to replace all the items and equipment versus what you may receive in an actual cash value policy.

 

How Much Does Business Insurance Cost for a Bookkeeping Business?

The price of a small business insurance portfolio will vary greatly depending on how big the business is and how much equipment and exposure is present. For example, insurance will be vastly cheaper for the sole proprietor who operates out of their home and has no employees.

On the other hand, bigger firms that have a brick-and-mortar location with multiple employees and clients are exposed to more risks, and therefore, the policy will be costlier.

Some factors that influence the annual premium:

• What is the size of the building?
• What is the age and condition of the building?
• How many employees are there?
• What is the value and quantity of stored documents and records?
• Are customers coming on-site, or are all interactions virtual?
• Are employees driving to customers and using a company vehicle?
• How much money is kept on-site?
• How secure is the network?
• Are there checks and balances in place to prevent embezzlement and theft?

Aside from assessing the risk that a bookkeeping company may face, insurance coverage amounts and deductibles will change the price of insurance. The best way to grasp the cost is to call several insurance agents and receive quotes.

 

When comparing different insurance companies and their policies, ensure that the coverage amounts are enough and that the deductible is acceptable. Low coverage and high deductibles will lower the costs, but you will want to ensure that the policy amounts adequately cover your claims when you need to use the insurance.

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