Warehouse, parts store fire teaches business interruption insurance lesson
A famous tag line for a major brand of spaghetti sauce was, “It's in there.” When it comes to business interruption insurance, or loss of use coverage, it might be “in there,” but the recipe is a closely guarded secret.
Business Interruption Insurance (BII) is designed and marketed to cover the resultant issues that occur when you lose the ability to operate your business due to tragic loss or damage. Before I continue, let it be understood that the face value of your policy for this type of coverage will only make you feel good about the potential benefit, because you are certainly not going to get that amount, or anywhere close to it.
In my situation having lost our parts store and warehouse to a fire on June 6, 2013, when I renew the policy (if I get to renew with the same company, which is another up-coming article), it will certainly be for a lesser amount of face value. Let me explain why.
When you lose your business or part of your business as it were for me, the first thing that runs through your mind is how am I going to continue some sort of semblance of what we used to have and how we used to operate, and how quickly can I do it. Since this business is highly dependent on cash flow, you will immediately be stressed out due to the lack thereof.
This is where I made my first mistake, and before I continue, and if you pay no further attention to the other things I'm going to point out, stop! I repeat, stop! Halt. Cease. Quit. Slow down. Whoa mule! I jumped through 1,000 hoops to try and set up an office, re-open our service center portion of our business, and in general, or I thought, to be able to function. That’s noble reasoning in regards to customer service, retaining employees and maintaining a presence in your market place.
There are three big reasons why you should think about this with a keen awareness, and steady mind regarding what you are doing and how it will affect you later on.
1. Will partially reopening provide an income that will allow you to break-even?
2. Do you have the resources to bankroll the cost of an immediate re-opening? It will cost several thousand dollars for things like restoring power, new office equipment, or renting an office trailer, and insurance settlements arrive slowly.
3. Have you thought about how a “partial” reopening will affect the calculations involved in arriving at a financial amount for your BII settlement?
Here's my advice, if you can't at least break-even, or you don't have the financial reserve to spend a bunch of money out of pocket, which you will not be reimbursed for appropriately, or the portion of your business that you are reopening will amount to 25 percent or greater of your previous volume, remain closed until you are made whole.
If someone had told me these things right after the fire, I would have dismissed it as a crazy notion. It's the very reason I should have waited about two weeks before making the first decision about anything. I mean anything. Why? Due to my mental capacity being diminished to the level of a tomato.
I was far too emotional about the whole situation and made too many knee jerk decisions that I am now finding out also diminished the size of my BII settlement in an equally proportional amount. Hindsight has revealed that calculating a total loss of use equals a maximum benefit of the insurance policy. A partial loss of use is just an undetermined percentage that will be argued over with the claims adjuster, and providing evidence to support your cause will be further squabbled about and pinned down by the same percentages. Go slow my friends.
When I discussed this situation with my father, he reminded me that I was not in the parts and service business, much to my surprise, but instead I was in the business of making money.
Just as a good spaghetti sauce requires a key ingredient like a juicy tomato, don’t forget our key ingredient is money and the use of such. Also, don't forget to stir often and at a low heat. I found out the hard way about too much heat. Regardless of your ingredients, just keep stirring.
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