When you eventually get all your ducks in a row and manage to finally open your dream business, the last thing on your mind is that you may encounter a problem big enough to hamper your newly established business flow. However, no matter how excellent your business acumen is, business ownership isn’t without its risks.
No matter how efficiently you try to manage your business, it only takes one major financial emergency, global pandemic, or bushfire to close your business doors for an indeterminable period. With this in mind, many Australian business owners invest in business Interruption Insurance as part of their initial coverage.
What Exactly is Business Interruption Insurance?
At its core business interruption insurance refers to a coverage that safeguards your business during an unplanned and uncontrolled downtime that often lasts for an unknown time.
Essentially, downtime is any ongoing period when your regular business flow is interrupted, and your business isn’t earning money. The most common reasons that could cause this type of downtime are listed as:
- Natural disasters include earthquakes, hurricanes, cyclones, bushfires, and floods.
- Vandalism to the property.
- Equipment or logistical breakdowns that cause significant downtime.
- Water damage to the property, stock, or equipment.
- Vendors are unable to supply agreed-on services or products due to circumstances beyond their control.
Forms Part of Every Essential Insurance Coverage
Choosing the best insurance package for your business can be challenging and it’s not uncommon for new start-ups to be under-insured. This is quite alarming when you consider that one in three small businesses fail in their first three years.
While there can be many reasons for this, a significant number of these can be attributed to businesses not being able to recover after a natural disaster or other crisis that causes downtime. Still not convinced? Here are a few reasons that will highlight the top reasons to invest in this essential insurance type.
1. Covers Lost Profits
Downtime due to natural disasters can keep your doors closed for an undetermined amount of time. This of course means that you won’t be generating the revenues to create your expected profits, which in turn hampers your ability to sustain your business.
If you have business interruption insurance, your policy will cover the estimated amount of income that you would have generated in the downtime period. Determining this amount is based on a calculation of the average profits for a specified period.
2. Lets You Pay Business Loans
Many startups use small business loans to either start their businesses, buy initial stock, or even set up necessary processes. Keeping up with the payments of these business loans is dependent on generating the necessary sales revenues.
If downtime prevents this from happening, your business interruption insurance will be able to kick in and assist you with keeping your loan up to date. This will also maintain your business credibility and not hamper potential future loans.
3. Keep You Up to Date With Employee Wages
Whether you have two employees or 20, not paying them can have severe consequences for your business. Not only will you run the risk of losing trained staff, but you may also face litigation.
Being able to cover employee salaries in times of crisis is one of the top reasons for many business owners to invest in this type of insurance in the first place. Not only will your employees receive their wages as normal, but you also won’t have to retrain new staff once your business re-opens.
4. Assists You With Possible Relocation
In some instances, the reason for your downtime can also damage the building you trade out of. This is especially the case if there has been a flood or bushfire in the area. This type of damage may make it necessary for you to relocate your business.
Not having budgeted for this relocation and not generating the profits required to make the move possible may mean you will be left with no alternative but to shut down your business. Fortunately, business interruption insurance can also include assistance with the cost of relocating your business.
5. Ensures Business Property Rental is Paid
Another important aspect of running your business involves paying the rent for your office, store, or warehouse. As with everything else in your business, being able to do this is dependent on you making sufficient and consistent profits.
Most lease agreements still require your rent to be paid during downtime, which can be challenging if the business is closed. Business interruption insurance will ensure that this happens. This will also apply to a mortgage payment. It’s essential to check that your insurance coverage has this listed as one of the covering criteria.
Final Thoughts
Business interruption insurance is an essential coverage that all business owners should invest in. This is especially important for small businesses as they are less likely to survive a major financial setback.
The right insurance package will protect you, your business, your employees and your customers from any eventuality associated with doing business with your company. Make insurance the least of your problems so that you can focus your attention on making profits!
