Floods, such as the ones seen in the UK earlier this year, are one of the most devastating claims we see. Floods are indiscriminate – they affect households and businesses of all shapes and sizes including small businesses. This can leave many struggling to get back on their feet even months after an event.
For entrepreneurs, floods can provide a painful lesson: that when disaster strikes it is not the cost of the physical damage, but the amount of income they lose while their business is closed that really hurts their firm.
Small firms can draw up a plan to help them to trade through a crisis, such as a flood or a fire at their premises. It needn’t be very detailed, but it should cover the important points that would enable your business to remain on its feet. The solutions can be simple, such as making arrangements for staff to work remotely while your office is closed or to back up your files onto an off-site server.
But it may be impossible to easily move your business, perhaps because your premises are your business (if you run an Estate Agency and rely on passing foot fall, for example) or because you rely on specialist equipment that has to remain onsite or may need to be replaced. In which case, it’s worth considering what’s known as Business Interruption (BI) insurance.
What is BI?
Business Interruption cover will compensate you for the income your company loses while it is forced to remain closed. It may also pay the costs and expenses (rent, utilities and the like) that you would still incur even though your premises are unusable.
But, as every small firm knows, if you lose clients because you’re unable to serve them while your business is closed, then it can be very difficult to win them back once you reopen. That’s why perhaps the best part of Business Insurance cover is that, depending on the type of crisis you face, the insurer can help keep your business running.
A typical Business Interruption policy will generally cover you for any lost profits that your business could have been expected to earn, based on financial statements from previous months. If your workplace needs physical repairs, your BI policy may also cover the property’s fixed costs and operating expenses.
Depending on where your business is based, it may also cover your fixed costs, such as operating expenses for your premises, or temporary relocation costs and any other reasonable extra expenses that allows your business to keep running while any repairs are carried out.
So, if you have to move to temporary premises and hire computers, your insurer may reimburse you for those additional expenses. Or, if you’re a software designer with a big project to finish for a client but your office is unusable, forcing you to hire sub-contractors to finish the work for you within the deadline, then your insurer could pay for these as well.
How much Business Interruption cover should you buy?
Many small business insurance policies will include some Business Interruption cover as standard, but it’s important that you work out whether that amount will fully cover your needs if the worst were to happen. When deciding how much cover to buy you should use your projected turnover for the coming year. If your firm is growing fast you should take this into account in your estimation.
The changeable nature of the weather and the impact of climate change mean flooding is an issue that is not going to go away. Small businesses must take steps to protect themselves from this growing risk. The importance of Business Interruption cover as a way to mitigate the loss to your business and keep you afloat in a flood should therefore not be underestimated.