What would happen if your business was destroyed by fire?

An interesting question and one which all business owners should consider as part of their risk management review.

MOST BUSINESSES CARRY insurance for such events. Do you? This insurance generally includes distinct areas:

  • Profits lost from the event. This is usually based on the  value of your gross profit as you would usually wish to   retain your experienced staff while you rebuild.
  • Increased costs of operation during the insurance period. These costs might include additional rental costs of alternate premises; additional advertising to ensure your customers know where you’re operating from and to build the business back up once you are fully operational; extra overtime worked by staff once you’re operational to catch up on backlogs.
  • Claim preparation costs. This can include employing a specialist experienced in this work to prepare the claims and deal with queries from the assessor.
  • Replacement plant, furniture and stock.

With current resource consent and building delays many operators are reviewing their length of period over which they insure their loss of profits. Twelve months is a common term of cover but with factors such as these this is now seen to be too short. A recent supermarket fire resulted in reopening one year after the event. However the organisation this company is affiliated to had experienced this catastrophe previously at another site, had full cooperation of the local council to speed things along and could recover market share relatively quickly.

The period of insurance should not just cover to reopening day in many cases as it will normally take some time to regain your customers and volume of business. The values covered for the remaining areas are also important. These should be reviewed with your broker on a regular basis using their experience and advice.

Now is also a good time to consider a plan of what you would do in the early stages after such an event:

  • How will you replace specialist equipment quickly – will this need to be imported, would it be feasible to have backup equipment held elsewhere for key components?
  • Where are your computer backups stored and are they adequate to allow recovery quickly. Do they include both software and data. Do you have a guaranteed rebuild time from your IT supplier?
  • How would you get communications back up and running. Where would you initially divert your phone and fax lines?
  • How would you communicate with your team to ensure they are retained and continue to be motivated to do the best for the company during these stressful times?
  • How will you communicate to customers expecting deliveries from you in the near and distant future?
  • Are there competitors whom you may contract to provide supply to retain your customer base?
  • How will you liaise with suppliers to ensure they continue to support you and have appropriate levels of supply available when you are back to operation?
  • What additional staff will you need to prepare claims and liaise with customers and suppliers?
  • What short term funding might you need while you deal with the insurer and place claims? Can this be discussed with your bankers so they will be on board immediately?
  • While a lot of information is on computers copies of key employee information such as signed employment agreements, applications and file notes, signed key contracts and leases could be held offsite to minimise time and effort?
  • Once you are up and running how will you ensure quality control in the early stages and how will you communicate to customers that you want their business back?

Consider working with your accountant and your team to prepare a disaster recovery plan for your business. Knowing what your plan is when an event like a fire occurs can significantly save in costs and personal stress!  - Article Supplied by RSM NZ