The premium for any commercial insurance is based on how much activity a business actually has. This is because the more activity a business has, the more exposure that business has to loss, causing their commercial insurance premium to go up. Your exposure is estimated at the beginning of each policy term, which is completed by simply looking at the figures pertaining to payroll, gross income, admission, gallons etc. but at the end of each policy term, the company through which you have insurance will conduct an audit in order to determine the precise amount of exposure that your business faces. The audit is conducted in order to ensure that your insurance premium is accurately based upon your company’s level of activity.
The three most important measures of business exposure include:
- Gross Payroll: This portion includes the method by which your company pays its employees and what money goes into that which may contain wages or salary, commission, bonuses, overtime, holiday pay, sick leave, and paid vacation. It may also include the value of any housing provided for employees. Things such as tips, dismissal and severance are typically deducted from payroll.
- Gross Sales: This portion will feature all income for goods and services that your company that your company provides. Things such as sales tax and the value of merchandise returned will be deducted from this figure.
- Subcontract Labor Cost: This includes the total cost of any and all labor, materials and equipment that is regularly used in order to make the product or provide the service that your business offers customers and clients.
It would generally be wise to prepare as best as you can for your audit before it is scheduled. Keep track of all of your business’s documents and make sure that they are clearly labeled for easy access when you need them. When the time comes around for your audit to occur, ask your auditor for a complete list of materials beforehand so that you have adequate time to prepare and consolidate the necessary materials and documents. From there, you can also begin to prepare your records in order to take advantage of any allowable deductions. Depending on the nature of your business and the services that you provide, there are some additional things that you may need to consider as well. If your business is involved with hired subcontractors, you will need to make sure that you certificates of insurance for each one, complete with policy term dates. If your business is a retail store or a restaurant, you need to report full gross sales of certain goods, such as food and alcohol, separately. If you have lottery sales, then only commission need be included.
If you want your audit appointment to go smoothly, there are several of other things that you might like to consider as well.
- Make sure that you have everything prepared to your auditor’s checklist.
- If you prefer an exact appointment, ask for the first appointment available on a given day. That way the auditor will visit you first thing and will not simply give you a window of time within which to expect them.
- In order to make the appointment go as smoothly and effectively as possible, it would be wise to provide the auditor with a clean workspace where they can easily access all of the necessary materials that they need.
- Since auditors are paid based on the amount of audits they conduct, making sure that your audit goes smoothly will work in your favor, especially if you let business ends up using the same auditor year after year. This can help you build a valuable business relationship that can help save your company money in the future.