When Should You Get Insurance for Your Payroll and Accounting Business?

If you own a small business or a sole proprietorship, you probably feel like purchasing business insurance is an unnecessary expense, especially if your business is just starting out. However, just like with renter’s insurance, health insurance, and car insurance, small business insurance can protect from your business or personal assets from financial, legal, or other claims in the case of an accident, lawsuit, disaster, or other unexpected occurrences. The same principles apply to your payroll or accounting business. So, when should you get insurance for your payroll or accounting business?

You should get small business insurance on your payroll or accounting business as soon as your business becomes established. Because approximately 57% of all businesses state that a lack of capital had no effect on whether or not the business failed, claiming that insurance is an unnecessary expense is not a viable reason for your accounting or payroll business to be uninsured.

 In this article, I will list several of the reasons why accounting and payroll businesses do not succeed, as well as explain the ways that having a good small business insurance policy can prevent your business from suffering from the same fate.

Why Do Payroll and Accounting Businesses Fail?

When Should You Get Insurance for Your Payroll and Accounting Business?

Approximately two-thirds of all small businesses do not survive to see their second anniversary. While accounting and payroll businesses are amongst the most profitable businesses in the world, this does not mean that every business in this industry will be successful. According to Fundera, there are now more small businesses opening than ever before. With more and more businesses opening every year, the market is at a higher risk of becoming overly saturated now more than ever.

Over-Saturating The Market

Unfortunately, the same concept applies to accounting and bookkeeping services. According to the website Balancing Everything, as of 2020,,there were 1.27 million accountants and bookkeepers in the United States. If you combine that with the fact that 72% of self-employed contractors do their bookkeeping and accounting errands without professional help, it’s easy to see that there is no shortage of accountants and bookkeepers, while their demand has decreased significantly.

Lack of Confidence or Unsatisfactory Performance

Another reason that many small accounting or payroll businesses fail is due to a lack of confidence that many business owners have in them. For example, over 62%of all small business owners state that they do not believe that there is anything their accountants can do to help them with their taxes. Approval ratings for accounting and payroll businesses have taken a sharp decline as well, with approximately only two-thirds of all small businesses saying that they are happy with the performance of their accounting and payroll services.

Lack of Technical Literacy

As most of you are already aware, the days of keeping records in a hand-written ledger are long gone. In the fact, a staggering 57% of all people who are in the payroll or accounting fields say that they firmly believe that future employees are going to have to be more much more savvy about technology than they currently are. This shows that many payroll and accounting business owners are well aware of the direction in which their industry is heading. Unfortunately, they must learn to adapt to this new way of accounting, or risk being left behind and inevitably having to close their business.

Legal Action Against the Business

We now live in a litigious society, in which people are consistently searching for a reason to take legal action against a business. Sadly, accounting and payroll businesses are no exception to this philosophy. Per the website Lexology, there are three reasons why these types of businesses find themselves in legal battles. They include:

  • Sudden changes in the financial situations of your clients.
  • Accountants are blamed for fraudulent activity more than most professions.
  • Third party lawsuits on behalf of the client.

Learn about about hiring an attorney for your payroll & accounting business.

How Can Your Small Business Insurance Help You?

Now that we have discussed many of the ways that payroll or accounting businesses can experience a catastrophe from which they may not be able to recover, let’s take a look at some of the ways that obtaining insurance for the your accounting or payroll business may be able to limit the damage some of these circumstances can cause. While having small business insurance can protect you from some of these events, it is important to remember that insurance may not be able to prevent each and every circumstance your business may encounter.

E&O Insurance

Per Nationwide Insurance, this type of insurance is a “specialized liability protection against losses not covered by traditional liability insurance. It protects you and your business from claims if a client sues for negligent acts, errors or omissions committed during business activities that result in a financial loss.” It helps to to think of E&O Insurance as a form of medical malpractice insurance coverage for accounting and payroll businesses. This insurance covers instances which are not typically covered by a traditional liability insurance policy.

Ford instance, if one of your clients experiences a suddenness financial loss, they may decide to take legal action against you and your business. Having a good E&O policy with a significant amount of coverage can reduce the impact that this litigation may have on your payroll or accounting business. This is one of the most important insurance policies that you can purchase for your business. In the event that the legal claims of found to be unwarranted, this insurance will still cover any legal fees that your business may incur as a result of this legal action.

Business Owner’s Policy (BOP)

When Should You Get Insurance for Your Payroll and Accounting Business?

A Business Owner’s Policy (BOP) is an insurance policy that combines three types of coverage for your accounting or payroll business into one umbrella policy, per The Hartford. These types of coversges, as well as what is included in the coverage, include the following:

  • General liability insurance – This type of insurance “covers claims that your accounting business caused bodily injury or property damage to someone else’s belongings. “
  • Commercial property insurance – This protects “your owned or rented building that your business is in, as well as the equipment you use to run your company,” and includes documents, computers, office furniture, and filing cabinets.
  • Business income insurance – Helps to replace lost income if you are unable to work due to damages to your business property.

Commercial Auto Insurance

While commercial auto insurance may not seem like a it is a necessity for your payroll or accounting business, likewise most insurance policies, you may never realize the importance of having commercial auto insurance unti there comes a time when you may need it. I know what you are thinking. What if my business isn’t quite large enough to have company vehicles? Well, do I have good news for you. Commercial auto insurance will cover your personal vehicle if it is primarily used for your accounting or payroll business. How does that old saying go? It is better to have it and not need it, then to need it and not have it. .


My personal recommendation is that you obtain insurance for your payroll or accounting business as soon as you become established. While small business insurance does not guarantee that your business will be successful, it does offer much-needed protection against circumstances that would be otherwise be catastrophic to your hard work and dedication. The primary types of insurances you should purchase for your small business include E&O insurance, a Business Owner’s Policy (BOP), and commercial auto insurance. While you may not think that your business can afford to have insurance, the fact of the matter is that your business cannot afford not to be insured.

Frequently Asked Questions

How Much Insurance Do You Need For Your Accounting and Payroll Business?

What are the top-rated insurance providers for a small business?

Small businesses have insurance needs that may not match their large counterparts. According to Investopedia, the best insurance providers for small businesses include:

  • Best Overall: State Farm
  • Best for Independent Contractors: Hiscox
  • Best General Liability Insurance: Nationwide
  • Best Workers’ Compensation: The Hartford
  • Best Commercial Property Insurance: Travelers
  • Best Business Owners Policy: Liberty Mutual
  • Best Commercial Auto: Progressive Commercial

What are some ways that accountants can avoided being sued?

Unfortunately, accountants and bookkeepers find themselves in legal battles more often than many other professions. However, according to Surgent, there are four steps that you can take to prevent your accounting or payroll business from getting sued. They are as follows:

  • Research and investigate clients.
  • Be knowledge of your client’s business.
  • Set proper limitations through attorney-approved engagement letters.
  • Do not ignore your clients, or their questions.

To learn more on how to plan your own payroll and accounting business click here!

Please note that the contents of this blog are for informational and entertainment purposes only and should not be construed as legal advice. Any action taken based on the information provided in this blog is solely at your own risk. Additionally, all images used in this blog are generated under the CC0 license of Creative Commons, which means they are free to use for any purpose without attribution.