Businesses face risks. Unexpected events may occur, including those which businesses did not anticipate, and these events can interrupt the normal operations of an enterprise, which then results in the loss of income. Other scenarios, such as this one, are more common: A building next to your business catches fire and within minutes it spreads to your location. Even with all the best efforts of the fire department you immediately know that you won’t working from that location for a while; the potential hazards to you, your employees and clients is just too great. Not only that, the fire consumes much of your merchandise, supplies or other business-critical material. What do you do? At that moment, you are in a quagmire as you try to figure out how and where to relocate your business, and how to make ends meet as you await new products to replace the damaged and destroyed ones.
Why Small Businesses Are Particularly Vulnerable
It is not easy to predict when such an expected situation could occur. Businesses are vulnerable to disasters such as fire, floods, tornadoes and even these days, terrorism. The Institute for Business & Home Safety (IBHS) estimates that up to 25 percent of businesses which suffer interruption due to a disaster, fail to reopen.
Without doubt, businesses vary in their ability to withstand disasters. An event that would be just a major irritation to a major organization could spell complete doom to a small business. Small businesses being so small, suffer many disadvantages; for one, their ability to stock goods and supplies is quite limited, so if a disaster strikes, they can’t continue to serve customers. For another, access to banking finance may be quite limited and even when they do have access, bank financing may not be at favorable terms. Due to such factors, the ramifications of even a minor interruption of the small business operations would be profound. It makes sense therefore that small business owners should take steps to mitigate risks and safeguard their businesses against interruption that could have devastating consequences. A significant portion of that risk containment means purchasing business interruption insurance.
Business Interruption Policy Coverage
One way to protect your small business is to purchase an insurance coverage. Business interruption coverage helps to protect your business in case of a disaster or other loss, and it replaces your lost profits or reduced income after a loss. If you cannot operate your business after a disastrous event, or if the event causes your income to reduce, such a policy can help. The policy may also pay for extra expenses that arise as a direct result of the interruption, such as, for instance, a gap between what you previously paid for utilities at your former premises and what you are now forced to pay at the location you temporarily relocated to.
How does it work? Simple: for instance, if a disaster occurs that destroys the products you were about to ship to a customer, causing you to lose income because you couldn’t make that sale, the policy will cover your losses, minus the expenses you would ordinarily have paid in the course of running your business anyway. Considering how much impact even a little increase in expenses and costs can have on a small business, such coverage can be the lifeline that you need to stay afloat after a disaster.
So, should you get business interruption insurance? In my professional opinion, it’s an absolute necessity. It could be the difference between remaining as a going concern or going completely out of business. Because business interruption insurance cushions you against losses which would ground your operations, it helps both you, the small businesses owner as well as the business itself, in a very big way. Knowing that you can re-open shortly after a temporary closure occasioned by some disaster, is peace of mind, and that’s priceless!