What's your business continuity plan?
Few situations make small business owners feel more helpless than when something outside their control forces their business to a halt. It's one thing for disaster to strike; it's another thing entirely to be unable to generate revenue while you try desperately to get your business up and running again.
Maybe that's why, according to Claims Journal, the recent Allianz Risk Barometer ranks business and supply interruption as one of the top three business perils for 2015. It even trumps worries over cyber risks – an interesting fact, considering that cybersecurity and data breaches have been hot-button issues the past few years.
But perhaps the concern about business interruption comes from its surprising price tag. You'd think that the cost of repairing your physical business property would be the most expensive part of these disasters. A fire, after all, can burn your entire building to the ground. But the report finds that business interruption – the domino effect following a natural disaster that keeps you from generating revenue – is actually more costly than the price of physical damage. That's because disasters impact your business, but they may also interrupt your suppliers and customers, too. In terms of cold, hard cash:
- The average business interruption claim costs $1.36 million
- The average property claim is $1.03 million
In other words, business interruption losses are 32% higher than property losses.
Now, you may already be familiar with commercial property insurance, the coverage that can help pay for the cost of physical damages your business suffers after a fire or natural catastrophe (e.g., the cost of building repairs and replacement equipment). But did you know there's such a thing as business interruption insurance, too?
Business interruption insurance: Backup income when you need it most
Here's a conundrum: a fire or windstorm causes property damage, which grinds your business to a halt. You're unable to make money because there's structural damage to repair, equipment to replace, and a host of other problems to correct before you can open your doors again. But that doesn't mean the bills stop rolling in. Even while recovering from a disaster, you still need to pay…
- Employee salaries
- Loan payments
But where is that money going to come from? You may have some money set aside for disaster recovery, but do you have the hundreds of thousands of dollars you'd need to get your business through the next 12 months without a single paying customer?
For most small business owners, the answer is no. In fact, according to FEMA, this is one of the very reasons that 40% of small businesses never reopen after disaster strikes.
Fortunately, when a covered property insurance claim keeps your business on standby, you can draw on your business interruption insurance to cover your lost revenue while your business gets back on track. It can help you make those payments that don't stop when your business does.
If a supplier's interruption keeps you at a standstill, your business interruption policy can cover those revenue losses, too, so long as you have contingent business interruption coverage.
Does business interruption insurance cover losses related to the coronavirus (COVID-19)?
Because business interruption insurance is tied to property insurance claims, most policies won't cover closures related to the coronavirus pandemic (COVID-19). Check with your insurance company's claims department if you think you might be eligible for a claim.
Shoring up your business continuity plan
Luckily, business interruption insurance is a pretty affordable policy. You can get up to 12 months of business interruption coverage when you purchase a business owner's policy (an insurance package that bundles property insurance and general liability insurance together at a reduced rate).
But insuring your business income isn't the only strategy you should have for surviving an unpredictable interruption. Create a business disruption plan that outlines…
- How to notify employees about a disaster and next steps for the business.
- How to notify customers if you must temporarily move to another location.
- Which backup supply chains to use when your primary suppliers aren't available.
Be sure to share your business continuity plan with your employees and keep extra copies of your valuable records and documents in a location away from your business. You don't want a catastrophe to destroy years of client information or insurance documentation you might need for a claim.
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