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Mark Tarpinian, CLU, ChFC
Licensed Insurance Counselor
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mark@tfi4insurance.com

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6 Insurance Aspects to Buying a Lawncare Business

Business has been great for you the past few years. You’ve built a profitable operation, as well as an excellent reputation within the community and among your employees, and even some of your local competing lawn care businesses. One Friday afternoon you get a call from another local lawn care/landscaping business owner. They want to retire and ask if you would be interested in buying them out. Yes, of course you would like to consider it, and you set up an initial meeting. The meeting goes well. You like their customer count, as well as the purchase price range and 

potential terms. You could also pick up a business location, building, and equipment. They do more than lawn care, including landscaping and snow removal. The whole scenario looks like an excellent growth opportunity. What insurance issues should you consider before you sign a final agreement? Know that certain aspects of their business could significantly affect your current business insurance as well as your overall business operations. Weighing these 6 key areas of a lawn care business will help you maneuver through the weeds of buying another lawn care business. 

1.) Future Customers: What percentage are residential and commercial? Residential will have fewer or no insurance requirements, while commercial will typically have many, including general liability, workers comp, and commercial auto insurances. Commercial accounts will typically require Additional Insured endorsements, frequently with lengthy and special wording—all of which may generate an additional premium charge of $75-$250/year. Blanket additional insured endorsements are available for a flat annual charge. 

2.) Operations: Will you strictly do lawn care, including spring and fall clean up? How about landscaping and hardscaping (pavers)? What about snow removal during the winter months? All of these distinctions have important insurance implications. They are all separate classifications for premium charges, both for General Liability and Workers Comp, and since the premium you pay can be based on payroll, you will need to keep separate and distinct payroll records to ensure accurate premium payments and to avoid annual audit surprises. You need to calculate the additional administrative costs into the equation.

3.) Claims:
 What is the claims history of the business you are buying? Have they had general liability claims alleging property damage or bodily injury? How about workers compensation claims? Are they currently being sued due to an auto accident? Have they had accidents in the past 3 years that could result in a liability law suit? What has been the frequency (how many) and severity (how much) of all these claims? Are any of the claims still going on? Depending on how you purchase the business you may be responsible for ongoing liabilities. Even if you are not, your current or new insurance company may underwrite for newly acquired business, and it may have an impact on how much premium they wish to charge.

4.) Buildings, Equipment, Business Property:
 Of course location and condition of buildings and equipment will be used to determine a part of your purchase price. They also have an impact on current and future insurance coverage and cost. For example, does the building or lot have underground or above ground fuel or oil tanks? To what extent has the equipment already been depreciated, and is replacement cost insurance coverage even available for it? Does the equipment and inventory list include accurate serial numbers? These will be critical to making an insurance claim for theft.

5.) Employees:
 Will you be acquiring any of the existing employees? Will you have them take a physical exam, including a drug test? Will you run criminal background checks? Will the newly acquired employees be on potential customer's premises or be in contact with customer property (the potential of an employee stealing from a customer's garage could be going up)? If so will they drive company vehicles, or use their own vehicle to do business for you? Do they have a currently valid driver’s license. Is their driving record acceptable to your current insurance company? Did the company you are buying have and participate in a formal safety plan? How often? Do they have documentation to prove it? All of these have potentially positive or negative insurance implications.

6.) Current Insurance: All of the above will have an impact on your current insurance policies. You need more than simply additional locations, property, equipment, and payroll to your current policies. You need more than a careful review of your current coverages, limits, and deductibles. You need to discuss, review, and have your current or new agent fully disclose changes in the scope of your operations to the insurance companies to ensure the integrity of policies, their coverages, and premium payments. You don’t want surprises when you need to make a claim or receive an audit. If you were a residential lawn care business before the purchase, but after the purchase you became 80% landscaping, hardscaping, and snow removal for both residential and commercial accounts, your insurance companies need to know now, before you have a claim situation and prior to your annual general liability and workers comp premium audits. Why? A claim situation may not be covered. You could be presented with a $7,500 audit premium (due in 30 days). You run the risk of having your policy cancelled or non-renewed, and you may have trouble getting new policies with competitive coverage and premiums because of these issues.

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