In 2014, the United States already has seen snow and freezing rain shut down many metropolitan areas, epitomized by the city of Atlanta coming to a binding halt after a few inches of snow. Can weather really have a substantial impact on your business?
They think so in North Carolina.
A recent survey found that one-fifth of small businesses there had to lay off employees due to inclement winter weather this year. About 40% of the state’s business owners reported weather-related damages of $5,000 to $25,000, and 44% were forced to close their business from a week to a full month. And that’s just a result of run-of-the-mill snowy weather – not a once-in-a-lifetime blizzard.
According to the Institute for Business and Home Safety, approximately 25% of businesses do not reopen following a major disaster. For this reason you should consider buying property hazard or general liability insurance. General liability combines coverage for damaged property and for people, should someone on the premises suffer bodily injury.
You also should consider how you, and your employees, will continue to earn a living if a disaster displaces you for an extended period of time. A policy for lost income is called business interruption, catastrophe or business income insurance. This type of insurance protects you from profit losses and is available for two scenarios: Loss of income because business operations are interrupted, and the reimbursement of expenses that you incur in an effort to keep your business going.
The following are examples of expenses a business may incur that would not be covered by property insurance:
- Ongoing payroll payments to salaried employees
- Lease or mortgage and utility payments at your regular location
- Relocation expenses, rent and utilities for a temporary building
- The costs of products and materials to replace your current inventory; frequently vendors charge higher prices and delivery surcharges to get them to you quickly
- The expense of recreating or reassembling business, financial and legal records lost due to the disaster
It’s important to carefully review any type of insurance policy, because they often name exclusions that would surprise you. For example, a “Named Peril” policy provides coverage only for the disasters named within the policy, such as fire or vandalism. If a disaster occurs that you couldn’t even imagine – such as a meteor falling from the sky onto your building – this type of policy would not cover that damage.
A more comprehensive policy is called an all-risk policy. This type of insurance covers damage caused by all types of perils, and any exceptions will be named within the policy. But here, too, you must read the fine print because it may specifically name exceptions, such as earthquake and flood damage from coverage. Some policies allow you to include additional perils for an extra fee. Note, however, that all flood policies are offered through the federal flood insurance program.
A business owner policy (BOP) offers a way to customize and combine several different types of business insurance policies under one umbrella. You can generally receive a lower single premium and easier administration with a BOP, which may include property insurance, business interruption insurance, vehicle coverage and professional liability.
According to a spokesperson at Impact Forecasting, in the United States this is already the costliest year for winter perils since 2011. The combination of physical damages and business interruption costs has caused direct economic losses well into the billions of dollars.
Do you have resources and a plan in place should disaster – or something like it – force you to close your business doors?
There are many good resources online to help you get started or to help you update your existing plan. Even if you think the chances of being affected are low, it’s not a good idea to put this task off. A plan could make the difference between your business going under or thriving for years to come.
The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Raymond James is not affiliated with any other entity listed herein. Investment products are: Not deposits, not FDIC/NCUA insured, not insured by any government agency, not bank guaranteed, subject to risk and may lose value.