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All franchise brands&mdash;emerging, established and anything in between&mdash;assume some level of liability in the normal course of doing business. It stands to reason, then, that every franchise should establish some level of protection from this liability in the form of insurance coverage, yet many brands don&rsquo;t recognize the importance of maintaining insurance coverage throughout their franchise systems.

&ldquo;Insurance, at its core, gives businesses the ability to spread out rick and pay small sums in lieu of facing a total financial wipeout from an accident of some kind, either inside or outside of their control,&rdquo; said insurance expert Doug Groves, president of certificate management and tracking company <a href="https://www.certmgmt.com/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=why-budgeting-for-insurance-and-insurance-compliance-matters-for-brands-2711056" target="_blank" rel="nofollow" style="text-decoration-line:none" target="_blank">EZ CERT</a>.&nbsp;

Groves&rsquo; company works closely with franchise brands of all sizes to monitor insurance compliance throughout their systems, ensuring franchisees are fully compliant at all times. EZ CERT is able to take the onus off of franchisors to ensure franchisees are maintaining the proper insurance coverage stipulated in the FDD so that brands can focus on growth without worrying about potential liability. EZ CERT analyzes each of its partner brands for potential risk areas and gaps in their current insurance coverage and creates a solution for how to address these gaps and risk areas at the unit-level.

Whether utilizing third-party vendors like EZ CERT or keeping insurance compliance tracking in-house, it&rsquo;s essential for brands to carve out a portion of their budgets to support the necessary insurance coverage to protect themselves fully. And while coverage necessities vary by brand, one thing is clear for all: Having an insurance plan is always a good idea.

&ldquo;Insurance is an expiring product that the franchisee purchases,&rdquo; Groves noted. &ldquo;A brand or franchisor is only protected during the policy period, so there must be some effort to manage this renewal process so both you and your system remain protected.&rdquo;

Such is the importance of investing in a strong policy as well as compliance management&mdash;as more franchisees enter your system, liability increases. Investing in compliance, therefore, makes sense in order to protect your brand from suffering a loss that is covered under your current policy, so long as it is active.

&ldquo;Franchisors need to know each year that their franchisees are protected from both actual losses and liability losses that may arise,&rdquo; Groves continued. &ldquo;Knowing the insurance status of your franchisees when they first open their business is only the start&mdash;investing in a compliance tracking and management system allows the franchisor to pass off what can become an extremely tedious responsibility that costs them time, salary and capital as their system grows.&rdquo;

Groves also noted that budgeting for insurance and insurance compliance is important for franchisors in the interest of protecting the royalties they are earning from franchisees. &ldquo;From the franchisor point of view, having your franchise partners adequately covered ensures they can remain your partner post- any sort of accident, which would cause them to lose a revenue stream,&rdquo; he pointed out.&nbsp;

As far as determining how much to budget or what plan makes the most sense of a given franchise, Groves said the specifics matter and advised consulting an insurance expert to understand where your business should protect itself the most. And while carving ut a portion of your budget on a monthly or yearly basis may seem steep, it&rsquo;s nothing compared to the alternative in the event something happens at one of your franchise businesses.

&ldquo;Insurance expenditures every year are nominal when compared to gross sales&mdash;these costs can be controlled so as to not interfere with the profitability of a business,&rdquo; Groves said. &ldquo;If you find that insurance is becoming unaffordable, a check on your expenditure to make sure it is in order, because the most expensive way to insure assets is to self-insure or wrongly insure them.&quot;

Why Budgeting for Insurance—and Insurance Compliance—Matters For Brands

1851 Franchise

Insurance compliance management expert Doug Groves breaks down why the costs associated with the proper insurance coverage and compliance are much more economical than the alternative.

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