Natural disasters such as earthquake, tornado, wildfire, and flood affect thousands of businesses each year. According to the Insurance Information Institute, as many as 40 percent of businesses forced to suspend operations due to a natural or human-caused disaster never reopen their doors. A disaster can strike without advance warning at any time…are you prepared?
In today’s unpredictable business environment preparation is essential for survival. A key component to a business’s survival after a catastrophic loss is business continuity management which includes both business continuity planning and business interruption insurance. Small business owners and individuals who are self-employed are especially vulnerable to the loss of income that business interruptions can cause. To protect yourself from losses in the event of a forced shutdown, the purchase of adequate business interruption insurance and the creation of a thorough business continuity plan are recommended.
BUSINESS CONTINGENCY PLANNING
A business continuity plan is a proactive approach to mitigate risks associated with disruption of your specific operations. Developing a plan begins with identifying risk exposures and response strategies to minimize adverse effects and restore business processes, personnel, and assets as quickly as possible. Implementation of your business continuity plan means more than simply exercising the plan during an emergency. It means integrating the plan into your company operations, training employees, and continuous plan evaluation.
Despite growing evidence that preparation is key to surviving a business emergency, more than 60 percent of small businesses do not have a formal emergency response plan.
Business Continuity Planning in Five Manageable Steps1
1. Define potential risks and threats 2. Determine how the risks will affect your operations 3. Implement safeguards and procedures designed to mitigate risks 4. Test the procedures to ensure that they work 5. Periodically review the process to ensure that it is up to date
A business continuity plan provides peace of mind, ensuring your business is prepared for an emergency with the safety of your employees and customers in mind. Here are five important disaster planning items to consider:
1. An evacuation plan to ensure employees and customers can get to a safe location 2. Emergency supply kits that are easily accessible and up to date 3. Employee CPR training 4. Keep important business documents and records in a secure digital location 5. Appoint a team leader and establish his/her responsibilities
SURVIVING THE LOSS
Consider safeguarding your business with business continuity coverage, an insurance coverage added to your property package policy that funds the restoration of your business operations after a loss. Would you be able to survive without revenue, pay your continuing expenses, or go without your own payroll for several months? For most business owners, the answer is no.Murphy’s Law states it succinctly: If it can happen, it will happen — and at the most inopportune time.
Business income and extra expense insurance is one of the most, if not the most valuable coverages available. BI and EE increases your ability to survive a substantial loss. Coverage for ordinary payroll is designed to allow you to continue to pay your valued employees during the period of time required to rebuild. Good employees are hard to find, and you can assure yourself that you will have the right people working for you after you are ready to get back in operation just like you did before the loss occurred.
Typically, your business revenue is not the same during every month of the year. You can identify seasonal variation of revenue so you can protect against the worst-case scenario.
Do you rely on other businesses in your area to supply or draw customers to your business? You can identify these dependent business income sources and help to continue your revenue stream if one of those businesses were damaged by an insured peril, even if your business does not experience a direct property loss.
You may not be aware of the additional costs associated with a loss. The extra expense section of the worksheet identifies expenses that may be insured. Before you begin, here are a few of the terms you will be using in the worksheet:
• Net income before taxes as listed on your latest income statement
Do not include other types of income listed on your income statement such as other income, extraordinary gain or loss,or other income sources that are not related to the primary operation of your business.
• Total operating expenses are annual expenses you have that relate to the primary operation of your business
It includes items such as rent, lease payments on property or equipment, employee wages and salaries (including yours), payroll taxes, benefits, insurance premiums, property taxes, utilities, administrative expenses, depreciation, and professional services.
• Ordinary payroll expense deduction
In this section, you must decide whether you want to continue to pay your employees if your business is shut down and your property is destroyed. For example, during a shutdown, if you plan to continue to pay all employees, deduct nothing (enter $0). If you do not plan to pay all your employees during a shutdown, you will exclude the costs of their pay here. When you enter this deduction, you can include payroll, benefits, FICA, union dues, and workers’ compensation insurance costs. Do not include payroll for officers, executives, department managers, and others designated as key employees in your income statement. That compensation is not considered part of your ordinary payroll.
If your business were to suffer an insured loss and you have business income insurance, you can effectively protect what you would have earned if no loss had occurred. Extra expense covers the costs related to reducing the duration and severity of the loss. If you can resume operations at a temporary location while trying to get back to normal after a loss or shorten the length of time you are out of operation, you will incur extra expenses.
Some examples of extra expenses include: • Rent at a temporary location • Temporary fixtures, machinery, and equipment • Moving and hauling • Installation of operations • Light, heat, and power at temporary location • Maintenance at temporary location • Insurance at temporary location
Other expenses may include advertising, business phone and communications (installation and maintenance at temporary location), engineering and administrative costs, emergency facilities, net amount paid to others for services and manufacturing, additional freight, and shipping costs due to temporary location or attempt to shorten the time you are out of operation, automobile rentals, and others.
Rounding out your property insurance program with business income coverage reduces your exposure to unforeseen loss and is an essential part of your business’s blueprint for survival. With advanced planning, implementing these measures can protect your bottom line.
Every business is different. Therefore, you should discuss these issues with your financial advisor or insurance agent prior to purchasing coverage.
For Auto Laundry News readers, a comprehensive business continuity management creation toolkit and plan template are available upon request. E-mail firstname.lastname@example.org.
1Provided by Zywave
Kimberly Grizzle, AAI, is the marketing and business development director for The Insurancenter, an agency that was founded in 1895 as a full-service independent insurance agency. A national car wash insurance program was introduced in 1986. Grizzle received her property and casualty license in 1996, and an Accredited Advisor in Insurance (AAI) designation in 2002. She joined The Insurancenter in 2000. Grizzle can be reached at email@example.com or (800) 444-8675.