Owning a quaint coffee café on the corner may be the dream of many. After all, coffee is currently the most popular drink globally. However, no matter how experienced you are in the coffee business, the reality is that no business is without its risks.
With that in mind, experts recommend investing in the right insurance coverage tailored to suit your business. The easiest way to do this is by discussing the risks vs coverage with your local business insurance broker during the initial start-up process.
Why You Might Need Business Interruption Insurance
As the name suggests, Business Interruption Insurance is a type of coverage that safeguards your business when there is a period of unplanned downtime. Several of the most common reasons that could cause business downtime to include:
- Crime or vandalism to the property
- Cyberattacks that compromise customer or business data or systems
- Suppliers’ or vendors’ failure to supply or deliver agreed products or services (this may be due to their own unique business interruption scenario)
- Water or fire damage to the premises, stock, or computer systems
- Machinery or logistical breakdowns that are severe enough to warrant downtime
- Natural disasters such as hurricanes, earthquakes, or tornados prevent any of the business processes to work correctly
A Few Reasons Why Business Interruption Insurance is Crucial
Many small business owners equate the insurance they need to the type of business they’re running.
That means, as a coffee shop owner, you might not see the relevance of getting extended insurance coverage for a tiny little corner café. If that’s your current train of thought, then you need to read this article.
A recent survey estimates that an average of 60% of Australian businesses fail in the first three years. Furthermore, about 13% of these failures can be directly attributed to underestimating the impact of external factors.
Insurance experts agree that inadequate insurance policies may be to blame in many of these instances. More specifically, a lack of Business Interruption Insurance. Does that mean that your small corner coffee café should have this type of coverage?
The answer is a resounding YES! BI insurance isn’t just for large corporations. Here’s why all businesses need it.
1. Profits From Sales Revenue
It should go without saying that sales revenue is usually a business’s primary source of income. Downtime and closed doors mean there are no sales and without sales, there’s no profit.
When it comes to Business Interruption Insurance, the estimated amount of income expected to be generated is covered. This is usually calculated based on several previous months’ sales figures.
2. Property Rental
If you’re renting the property your business runs out of, you’re responsible for monthly lease payments. It also means that you’re dependent on the profits from your coffee shop to make these payments.
When an incident happens that causes your business to close for an undeterminable amount of time, you won’t generate enough profit to make the payments. Business Interruption Insurance will enable you to make your monthly rental or mortgage payments while your business is temporarily closed.
3. Business Loan Payments
Many small business owners rely on a business loan to get their company started.
While some business loans have clauses that cover loss of revenue due to an external factor, not all of them do. Business Interruption Insurance will be able to keep the loan up to date and in the process maintain the business’s credibility with its lenders.
4. Employee Wages
Employees are a company’s most important asset. A loss of revenue due to business downtime means business owners are unable to pay employees. This can often lead to some or all of the workforce quitting.
When the business reopens, the owners must find new employees as well as initiate training programs from scratch. One of the key factors covered by Business Interruption Insurance is employee salaries.
This will ensure that employees receive their wages timeously so you have them on the team when you’re up and running again.
Depending on the cause of the downtime you may have to relocate your business to other premises. Relocation processes are usually planned and budgeted for the previous financial year so that the business doesn’t have to absorb the cost all at once.
Therefore, an unexpected relocation can be quite costly and can lead to further downtime and additional loss of revenue. Business Interruption Insurance coverage has a clause that includes the cost of moving the business as well as the actual relocation.
6. General Overheads
The usual overhead expenses such as water, utilities, and communication are also at risk of going unpaid if your coffee café experiences sudden and undetermined downtime. Fortunately, Business Interruption Insurance covers this aspect of your business as well.
Insurance experts recommend that all small business owners invest in the maximum coverage such as comprehensive Business Interruption Insurance. Doing this will ensure that your business, whether it’s a coffee shop or a logistics company, is adequately covered.
Provide yourself, employees, and clients with the peace of mind associated with the right insurance!