Tag Archive for "Insurance"
We’ve had four days of torrential rain here in the Northeast. Had it been snow we would have received 80 inches. Instead what we have is a lot of flooding. So what relevance does this have to business?
Many businesses are interrupted. Their physical plant is partially under water and even if the water has receded, there is extensive damage. Not much business is being conducted in some places. As a result there will be cashflow issues about covering payroll and fixed costs in the coming weeks. This will cause some already struggling businesses to fail.
Steps to Protect Your Business in Advance of an Interruption
As a contract CFO I always plan for the worst-case scenario on behalf of my clients. Here are a few steps to help you plan:
- Have a written Disaster Plan. A disaster plan is your advanced thinking of what the company would do in the event a natural disaster brought operations to a stand still. What vendors you would need to contact to bring in extra equipment and supplies. Where you would house operations until your normal operations were back on track.
- Purchase Business Interruption Insurance. Also known as business income insurance, this coverage replaces the income your business would generate under normal circumstances. It’s meant to cover your most critical expenses (i.e. payroll and fixed costs) and replace the lost profit while the company gets back on its feet.
- Purchase Extra Expenses Coverage with the business interruption coverage. Unfortunately not everything is covered under business interruption. It’s not meant to pay for the temporary help, rent and equipment you might need. If you don’t purchase the coverage and then need it, it comes out of the business cashflow and profits.
- Plan for Contingent Business Interruption. This is what happens when your key supplier has the natural disaster and can’t deliver the materials you need to keep production going. It is additional insurance coverage you purchase only to cover those key suppliers, not every supplier. Again if you forgo the coverage then the cost comes out of current cashflow and profits.
These storms are Mother Nature’s way of reminding us we really aren’t in control of much. Your property and casualty insurance broker can help you determine what you need for coverage in advance of disaster. And despite times still being tough for many businesses and there being an inclination to cut back on coverage, this is not one to forgo.
What else would you do to plan for a business interruption?
The Wall Street Journal had a very good article on how and why small business owners need to insure their businesses. See Three Ways to Insure Your Small Business.
Do the subcontractors you hire provide a certificate of insurance proving they carry their own workers compensation coverage? If you are not requesting a certificate for every subcontractor you are putting your company at substantial risk. Many insurance companies and states require a company to include subcontractors under their workers compensation policy if the subcontractor can’t prove they maintain their own coverage.
Depending on the length of the project its a good idea to check during the project period that the coverage is still in force. While the original certificate may indicate a term of coverage that exceeds the project period, lack of payment or some other factor may cause the policy to be cancelled.
Failure to pay attention to maintaining certificates can result in substantial, unplanned for premium increases. In the event of injury, the subcontractor may not be covered and your company may be sued to cover medical costs. Both possibilities are something to be avoided.
