You’ve probably heard of being licensed, bonded, and insured. If you’re going into business for yourself for the first time, you might not be entirely sure what each of these things means for you as a business owner. Here’s a summary of what they are and why they’re important to your business.

Licensed

To work as an electrician in any state, you need to have a license. A license shows that you’re qualified to do electrical work, and customers will (hopefully) want to know that you have a license before they hire you. In the US, licensing requirements vary from state to state and sometimes even from city to city. Generally, to become licensed as an electrician, you must first have worked a certain number of hours as an apprentice. You may have gone to trade or technical school first, but that’s not necessarily required if you can get a position as a helper to get on-the-job training.

Once you’ve spent the required amount of time as an apprentice, you can take the electrical journeyman exam and be licensed as a journeyman electrician. Once you’ve spent the required number of hours/years as a journeyman, you can qualify to take the master electrician exam and be licensed as a master electrician. The exact names of the different levels of licensing vary by state, but they follow the same general requirements of minimum experience and passing a test.

Once you’re licensed, you’ll receive a license number that customers can look up to verify that you are indeed licensed. You’ll also have to renew your license periodically to keep it valid. Again, the requirements for renewal vary by state, but you generally need to have a certain number of working hours and continuing education per year or renewal cycle.

Bonded

Bonding protects the customer if you mess up in a way that could hurt them financially. Bonds differ from insurance in that bonds are designed to protect the customer more than you, and for that reason, they can boost your reputation and show that you’re more trustworthy than someone who isn’t willing to purchase bonds.

For all a customer knows, you might not complete the job, you could forget to pay a permit, or one of your crew could steal their property. When you purchase a bond, you pay a certain amount to the company providing the bond. If the customer feels the need to file a claim against you (let’s say your employee steals their computer equipment), they are assured that the bond will cover the cost since you’ve already paid for it.

There are different types of bonds, the most common of which are surety bonds and fidelity bonds. Surety bonds protect the customer if you don’t perform the work as agreed. Fidelity bonds protect the customer from theft or fraud from you or your employees. Sometimes, your state will require you to purchase other types of bonds just to stay licensed. Look up what your state requirements are to decide how much coverage you need.

Insured

You take out insurance to protect you and your business if something goes wrong on the job. If you or one of your crew damages the property or if someone is injured because of your work, your liability insurance steps in and covers the cost. Customers should be certain you’re insured so that they don’t risk having to file a claim on their homeowner’s insurance.

Workers’ compensation is another form of insurance that protects you and your crew if any of you is injured on the job. The liability insurance mentioned previously does NOT cover injuries to you or your employees, which is why your state probably requires you to have workers’ comp even if you only have one other guy.

Insurance gives you peace of mind as a business owner. If you or a crew member are seriously injured or killed or if there is an accident that causes damage on the property, being adequately insured helps protect you against lawsuits that could bankrupt you. The best way to get the right amount of insurance is to talk to a licensed insurance agent about your specific business situation and needs.

When setting up a business, it’s essential to make sure you’re protected financially. Make sure you know what your state requires for licensing, bonding, and insurance, or you could find yourself in serious financial and legal trouble.

How else do you protect your financial interests as a business owner? What do you wish you’d known before you began running your own show?