5 Steps to Prepare for a Business Interruption
August 8, 2016 | By Kelly Mansfield |
There are some startling statistics when it comes to the failure rate of businesses after a disaster. Here are just a few according to the Federal Emergency Management Agency (FEMA):
- 40% of businesses do not reopen after a catastrophic event.
- Of the businesses that do resume operations, 25% fail within the first year.
These statistics reveal the importance of preparing for the unexpected and taking action to mitigate the risk associated with the temporary closing of a business. Here are 5 steps to plan for a business interruption:
1. Know what your business stands to lose. It is important to determine the potential financial damage that your business could suffer in the event of a business disruption. Analyzing past, current, and future profit and loss statements, historical sales, and anticipated income and expenses will help to determine the potential exposure to a business income loss.
2. Identify risks to your business that could result in a business income loss. There are multiple perils that could result in a business having an income loss. Some examples include fire, windstorm, vandalism, water damage, and cyber events.
3. Prepare a business continuity plan. Developing a business continuity plan before a disaster happens will allow your business to recover more quickly and lessen the burden of determining a plan of action after a disaster.
4. Have a “big picture” view of your supply chain. Determine which critical suppliers and customers your business depends on and how an interruption in their business could impact your revenue.
5. Secure appropriate business interruption insurance coverage.
Business income or business interruption coverage pays for the loss of income that a business sustains due to a covered property loss on a commercial or business owners’ policy. Business income coverage generally includes coverage for lost revenue as a result of business closure, fixed expenses (like rent or utility costs), and the expenses of operating from a temporary substitute location.
Coverage for business income includes a time limitation referred to as the “period of restoration,” which begins when the direct damage occurs and ends when the property should be rebuilt, repaired, or replaced. Talk with your commercial insurance agent about business interruption coverage, and familiarize yourself with the coverage and any limitations to the policy.
At Pioneer Business Insurance Agency, we work hard at being accessible, helpful, and result-oriented. Learn more about us at PioneerBusinessInsurance.com. How can we put our expertise to work for you?