Not something that happens every day, but it just did happen and many local businesses were affected. So when something unimaginable happens to your business, what are the next steps?
Naturally, if you have insurance you will call your Broker or Insurer and start the process of a claim. Now is crunch time, did you choose on price or product?
All business insurance policies are built section by section, not automatically packaged like home and contents insurance and this is where you need to pay attention. You will not only be looking for the Fire & Perils section, but also for Business Interruption section. This is the bit that pays for the continuity of the business.
The Australian Bureau of Statistics (ABS) suggests that 42% of businesses that have a major loss do not restart their business. A whopping 70% of those that do restart fail in the next 3 years. The predominant reason is lack of cash flow to keep their business going in the very time that they need it.
This insurance is designed to protect the continuity of your business. It will pay for the “loss of profits” that the business suffers as a consequence to the Fire & Perils section. Furthermore it goes on to continue to pay wages for your staff, and any Additional Increased Costs of Working (AICOW).
These may include renting temporary premises so you can continue to trade, advertising to the general public to let them know that you’re still in business. This is the “chuck money”. It’s the money that you chuck at the problem to lessen the effect on the business.
This section of insurance has to be set up properly and dealing direct with the insurer may not be your best option as this is one of the most misunderstood sections in the insurance industry. A professional insurance broker is trained to understand how to set the sums insured appropriately to get the best result for your business.
But the big question is, when do you get any money? In many policies there is no obligation on the insurer to pay at a particular time. Some may pay a progress payment to cover commitments already in place.
Essentially you have to experience a loss in order to quantify your payment. So your accountant will play a big role in this process. One would suggest when times are tough, Business Interruption is the last section you want to carve off to save money on your insurance bill as it will be the first section you want to rely on to keep your business going.