by Michelle L. Hirsch
If your business is forced to close its doors by reasons beyond your control, would you be able to survive a week? How about a month?
When we talk business insurance, the first thought is often how to rebuild the office if it should ever go up in flames or who pays for the attorneys when you receive the lawsuit claiming a product malfunction.
What about when something bad happens (not directly to your business) but seriously affects your business? Confused?
Here are some claim examples from a few of my clients:
- A high-traffic small business district in Kansas City was closed for a month during streetcar-related construction causing the typical customers to avoid the area like the plague. Our client still had to open its doors per their lease, not to mention continue to pay utilities and payroll even though not a single customer showed up each day.
- After the 2013 Boston bombings, businesses were forced to close (even those that did not suffer physical damage) for 12 days while law enforcement investigated the area. Our client experienced a major loss of sales as well as spoiled inventory.
- After a big rain and windstorm in Houston, a major power outage prevented businesses from opening and accepting payments. Our client incurred major additional expenses to try and operate literally in the dark.
- A manufacturing client in Cleveland’s main supplier of materials suffered from a major cyber-attack. The supplier could not fill the orders or process any shipments to our client – simply out of luck until their supplier got back on its feet.
Business Interruption insurance provides protection when a business falls victim to circumstances outside of its control. It is a type of insurance that provides coverage to protect the business against any sort of loss that arises from its inability to operate normally. Each policy is different as to what it will cover, but it could include loss of income as well as pay for fixed costs like utilities, rent and payroll. Every business should want to protect the profits potentially earned while recovering from any interruption.
How does a business know the right amount of Business Interruption insurance to buy? I suggest working closely with your insurance broker to determine an appropriate amount of coverage to purchase. It is important to also involve your accountant in the conversations, to ensure your coverage doesn’t fall short when it matters. Coming up with the right number should involve important details like financial statements, financial projects, monthly sales/expenses, and inventory.