If your business facility was to become inoperable due to a natural disaster, vandalism or other incident, how long would it take you to rebuild?
Then, after re-building the physical side of the business, realistically, how long would it take to re-build your client base and related income after being closed for an extended period of time? The reality is that it can take quite a while to begin generating the income you enjoyed before a disastrous occurrence. However, with the right insurance coverage, you can ensure that you have the funds to sustain your business while you rebuild.
Take, for example, an Italian restaurant in a strip mall. The restaurant has one chef, one sous chef, 20 employees, and an imported pizza oven. What if one of the other businesses in the mall catches on fire and the fire were to spread, completely destroying the Italian restaurant. Basic fire coverage would only insure the cost of the damages inflicted by the fire. It wouldn’t replace the income needed to pay salaries and other obligations while waiting for a new custom pizza oven to arrive and the restaurant to reopen.
Large corporations typically have entire divisions dedicated to contingency planning in the event of a “worst-case scenario.” However, that vital function is often misunderstood or overlooked by small-to-medium sized businesses. In fact, the lack of a continuing stream of income while rebuilding a facility and client base is the major reason that many businesses close their doors for good after disaster strikes. Having a well thought out contingency plan with the appropriate insurance coverage will help to greatly ease the financial burden of sustaining the business.
Business owners or decision makers should perform a thorough review of their current insurance plans, because some plans do provide limited business income protection. However, as a company continues to grow and acquire more assets, it may exceed the amount covered in the original plan.
It is important to realize that a cookie-cutter approach to your coverage won’t always work, because every business has different types of exposure. Partnering with a knowledgeable, experienced agent who can help you understand the risks which are specific to your business is important. Your agent will explain the benefits and intricacies of Business Income Insurance and can help perform an analysis of the cost to sustain the business in the event of a “worst-case scenario.”
To identify the types and amounts of coverage your business may require, a business owner or decision maker should consider the realistic cost of sustaining a business, including:
- Which expenses will continue even if the business experiences a disaster such as loan payments?
- How long will it take to restore the facility and re-engage the client base?
- How long will it take to replace specialized equipment?
- How much money will it take to continue paying your own salary and those of key employees while waiting to reopen the business?
- Can you keep your business operational in the event of a disaster through the use of a temporary facility, and if so, what extra expenses might you incur because of it?
- If your business is seasonal, what would the monetary impact be if the disaster happened during your peak?
It Won’t Happen to Me!
A common attitude among owners of many small-to-medium businesses is that it will never happen to them, and others may feel that the coverage is cost prohibitive. However, the reality is that disasters do occur and the risk is too great not to be prepared. The cost of business income coverage is nominal when you consider how much it may provide when you need it most. As previously mentioned, interruptions can end up costing you your business if the proper measures are not taken.
Planning for Business Income coverage may seem overwhelming and tedious, but you never know when disaster may strike. This complex and often misunderstood insurance can be a valuable tool to successfully re-building a business.
