How long could your business survive with no income?
Most savvy retailers and tradesmen are well aware of the need to have at least some form of basic business insurance in place to protect their operation and the ability to earn an income.
These people recognise that Shop & Retail Insurance or Tradesman Insurance is a “must have” to protect against natural disasters such as floods as well as man-made threats such as arson or burglary.
By having this insurance, business owners take comfort in knowing that should the worst occur, they will have the resources to rebuild their store or replace stock or tools and get their business up and running again.
But damage to or destruction of property and goods can often lead to further financial consequences, including loss of revenue and/or increased operational expenses.
Known as business interruption, these losses can be far greater than even property damage for a property owner.
This is because many fail to consider how long it can take to get a business operating at its previous level or the extra costs that may be incurred at a time when there may little or no business income.
The result is a doubly negative impact on the bottom line of a business – significantly reduced or no income and increased operational expenses.
Weeks or even months of no sales and therefore no income will push even the most successful of businesses to the wall.
It may be only after the worst has happened that the full implications are understood and the benefits of business interruption insurance are realised.
Business interruption insurance is often available as a “bolt on” option to Shop & Retail Insurance and Tradesman Insurance which generally provides cover for employers liability insurance, public liability insurance, building, contents and stock.
Business interruption cover has been one of the most overlooked types of insurance to date, however it is increasingly becoming an essential consideration for who want protection against unknown threats that could jeopardise their business.
Business interruption insurance compensates for the loss of profit that you would expect your business to achieve if it had been operating normally, as well as paying any increased working costs. These can include rent for a new premises while your existing premises is being repaired or rebuilt, employees’ wages or extra accountants fees.
When working out the level of business interruption coverage you require, you will need to estimate the maximum time needed to get your business operating normally following the most serious damage.
You will also need to provide an estimate of your anticipated gross profit, based on recent years’ financial performance.
While there is no doubting the importance of business interruption cover in major disasters such as a flood or fire, this insurance can be incredibly valuable even in instances that may seem inconsequential by comparison.
For example, consider an interruption to your businesses electrical supply which takes two days to rectify. What does the loss of two days’ sales do to your business while you still have fixed expenses such as staff wages and rent?
Consideration also needs to be given to protecting your business in the case of events that happen to another business, particularly key suppliers of products or services.
What if the tragedy strikes your major supplier, meaning they are unable to provide you with your essential stock or materials for any length of time, detrimentally impacting on your ability to trade?
The nature of business today and just-in-time delivery of goods can see an alarming domino effect take place – a negative event for one business can quickly flow through to their key customers, including you.
Putting business interruption insurance in place provides an ideal opportunity to review your business continuity plans or perhaps to implement them for the first time.
In doing so, key issues to consider include:
• Does your business insurance cover for all possible threats to your business?
• Where will you operate your business from in the event that your current premises is damaged or destroyed?
• What will happen to your staff in the event that your normal business operation is interrupted? Will you be able to continue paying their wages until you are operational again or will you lose key staff?
• Will you be able to restock quickly and easily in the event of loss of stock?
• Are you overly reliant on one supplier for a product or service?
No matter how good a business operator you are or how profitable your business is, there will always be events outside of your control.
Business interruption insurance ensures you can open your doors again despite the most testing of circumstances. Click here to compare small business insurance quotes with Simply Business.
This article was originally published on Simply Business. http://www.simplybusiness.co.uk