How to protect your business
Operating a business is not always plain sailing – some things are well within your control and others, completely out of your sphere of influence.
So how can you protect your business’s bottom line and the welfare of your staff in the event of a disaster?
A disaster can be a naturally destructive incident such as a serious earthquake or comprehensive storm that directly disrupts your ability to run your business, or it could be an event that impacts a major supplier or distributor with severe repercussions for your day-to-day operation.
Either way, it could pay for you to look into the viability and ins-and-outs of business interruption insurance – or business continuity insurance – an outgoing that could be invaluable in times of disruption.
It’s a business equivalent to personal income insurance – It covers loss of gross profit, the reduction of turnover and the increased cost of working in the wake of business interruption and minimises the financial impact of any disruption.
Here’s some things to consider:
• Running a business extends well beyond the physical premises and the equipment it takes to run that operation
• Your existing business insurance may cover the physical assets associated with your business in the event of a disaster, but what about the potential lack of cash flow?
• How would your business be financially-placed if a fire, earthquake, flood, hailstorm, extended electrical blackout, vandalism or other wide-reaching event meant that your business couldn’t function?
• What would be the impact on your business if major arterials were inaccessible due to a major weather event?
While your business doors are closed or only partially open, business interruption insurance could cover (for a pre-established period of time):
• Fixed business expenses that are ongoing e.g. rent, electricity
• Costs associated with relocating to temporary premises
• Lost income
• Additional costs associated with sourcing product/stock
• Advertising costs to alert customers and clients of changes to your service offering
How much coverage do you need?
• Each business will be assessed on its individual credentials – one size will not fit all
• Location, type of business, size of business and business risks will all come into the equation
• This is where sound financial record keeping comes into its own – how much would it cost you to keep your business afloat when a disaster effectively derails it?
• Remember to carefully assess, and be realistic about, the period of cover you choose to go with – would 12 months be long enough to get your business back on an even keel? Bear in mind the drawn-out aftermath of the Christchurch earthquake…
How does it work?
• Business interruption insurance is a clip-on to your business asset/ physical property insurance
• You make a claim on this over and above a material or physical damage claim
• The insured gross profit figure will be established/agreed to at the time the cover is taken out and clearly stated in the policy schedule
• Stakeholders in the business will feel reassured that their interests/profits are protected
• Ongoing bills can be paid on time
• You’ll retain your customer base
• You’ll be able to fulfil obligations to staff
• Minimise staffing disruptions
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