Insurance against profits loss

IN trying economic times, many businesses, particularly SMMEs, cannot afford to suffer losses in profit, which may be crippling to recover from financially.

Fortunately, however, insurance cover against such losses exists – it is called loss of profits insurance or consequential loss cover.

In essence, this insurance sees you through the time it may take to get your business back up and running after an unforeseeable event.

While business owners tend to understand the importance of insuring physical assets against loss, very often overlooked are the potential and consequential effect such a loss may have on revenue and profits of the business – as well as the additional costs which could be incurred to ensure business operations continue.

You may forget that while the building you operate in or your stock is adequately covered should there be a fire or other disaster, there is the matter of what happens in the time it takes to restore things to “business as usual”?

Imagine for a moment a retail store in a shopping centre.

A fire burns down the building.

The building is insured by the property agent or owner of the centre, and the retail store in question has now lost all its stock.

Fortunately, there is adequate fire cover in place

for the stock.

The restoration of the building could take up to 12 months, during which time the retail store cannot trade.

The property agent may try to find alternative space, though this will still have an effect on trade and the retail store would need to adjust to a new area.

Perhaps there is no alternative space available until the shopping centre is rebuilt.

The reality is that the retail store would probably have to close down temporarily, unless there is cover in place against lost profits.

While many costs may directly reduce as turnover reduces, there are many costs that will remain regardless.

Costs such as staff, insurance, interest on loans and the like will still need to be paid to keep the business afloat.

Where new or additional costs come in, such as advertising to keep the brand alive, a loss of profits policy is a life-saver.

Moving temporarily will require communicating with customers and advertising, and these costs can be difficult to fund, particularly for smaller businesses with limited cash flow.

If a business cannot trade, regardless of how adequate its stock cover is, it may still go out of business.

Loss of profits insurance ensures that your business is adequately covered no matter what.

It is important to consult a qualified adviser to guide you and make sure you get the right amount of cover, such as calculating the appropriate sum insured value.

The good news is that this cover is relatively inexpensive compared to the loss you might suffer without it.

All too easily accidents can happen and it is better to prepared, or it could be really bad news for your business.