Business interruption is a key concern for Australian businesses today – and it’s not going away any time soon.

The events of the past couple of years have taught business owners that disruptions to business-as-usual can come with little warning. They’ve also highlighted that planning financially for unexpected disruptions is a key component of sustainable business practices.

Small and medium business owners are facing an increased frequency and severity of existing risks like storms, cyclones and bushfires, says Arron Mann, QBE Insurance General Manager, Short Tail Claims. While most business owners are well aware these events can cause physical damage to their premises and interrupt operations, there’s less understanding of the broader risks – for example, the potential impact that damage to a road, bridge or railway could have on supply chains.

Big, bold acts of nature aside, Mann says the more common causes of disruption are usually on a somewhat smaller scale – think burst pipes, burglary, fire, and accidental or malicious damage.

Planning for a rainy day requires more than considering potential lost income

As well as planning how you’d pay ongoing expenses to prevent winding up the business and protect already-invested capital, Mann says small business owners need to make provisions for meeting personal guarantees connected to the business, and maintaining personal income.

“Business interruption insurance is designed to cover cash flow when regular business activity has been interrupted due to insured property being damaged or lost,” Mann says. In essence, business interruption insurance is there to help businesses get back to normal operation as soon as possible.

Say, for example, you’re running your own café and a pipe in the kitchen bursts. While you’re still able to provide coffees and bring in some income, the damage to the kitchen means you’ll be unable to provide dine in or take away food until it’s fixed – considerably reducing your takings in the interim.

Having the right business interruption insurance enables business owners to maintain their cash flow. It covers the shortfall in business income, and includes paying staff who would have otherwise been working and ongoing costs such as rent, wages and utilities and any increased cost of working until the business is back to operating at its prior levels.

In addition to income, businesses are also usually looking at the time it takes to restock supplies and replace machinery.

“We had a case where a large industrial factory sustained considerable hail damage to their building, requiring a full roof replacement. The roof replacement would significantly impact their ability to trade, resulting in loss of income,” Mann says.

“Business interruption insurance enabled the sourcing of an alternative temporary premises to rent for the duration of the roof replacement, and covered relocation of essential equipment, allowing the business to continue trading and reducing the impact of the interruption.”

Watch Arron Mann explain business interruption:

Nailing the right insurance is generally not a DIY scenario

Seeking professional advice will help you secure adequate cover for your specific circumstances – being underinsured or having some specified exclusions in your policy may render a claim invalid or provide inadequate coverage, for example. It’s also a time saver – Deloitte research shows that each customer who works with an insurance broker saves 11 hours.

As well as helping you accurately assess what you need and negotiate a good deal on your behalf, speaking to an insurance broker can help you better understand terms or conditions and ask all of the ‘what ifs’ you may have brewing.

“There are lots of options for businesses when it comes to insurance, so it’s important to speak to a professional to ensure you have the right coverage. Insurance brokers or agents can help you identify the unique risks your business faces and craft a tailored solution,” Mann says.

He also notes while it may sound obvious, it’s important to check your business insurance does include business interruption cover.

Much like any type of insurance, never set and forget – Mann suggests regularly reviewing your insurance coverage, not just for business interruption but for all insurances, to accurately reflect the current state of your business.

Calculating your cover

It is also extremely important that the level of cover being the business interruption sum insured is adequate. To make sure of this, you should consult your accountant for their advice on the sum insured required for the type of business interruption cover selected.

If you want to do a little prep work before seeing a professional, understanding how the potential financial impact of a loss or interruption to your business is calculated may be helpful. In brief, Mann explains it really comes down to the severity of the loss or damage caused by the insured event, and the subsequent time it will take to get your business back up to its previous level of operation.

“Owners need to consider how long it may take to get the premises or damaged property ready for repair or replacement, including demolition or debris removal, new construction plans and building permit approvals,” he says. “If the insured event is a catastrophe such as a cyclone or bushfire, an additional allowance for labour and material shortages will be needed.”

While your place of business is being repaired, it may also be necessary to find temporary or new premises. Timing can also be a factor – if, for example, the event happened during peak trading (or just prior to, meaning you’re closed or operating under limited capacity during peak trading times).

Last but not least, ‘lag time’ is sometimes part of the equation. For example, you may have to wait for key machinery replacements, especially if it’s not ‘off the shelf’ or is from overseas, and how long it may take for customers to return.

While thinking about disruption to your business may feel daunting, the security that comes from knowing you’re properly financially covered is not.

Find out more by checking out QBE’s resources for small business at qbe.com.au.

This article is brought to you by Kochie’s Business Builders in association with QBE Insurance.

The advice in this article is general in nature and has been prepared without taking into account your objectives, financial situation or needs. You must decide whether or not it is appropriate, in light of your own circumstances, to act on this advice. You should ensure you obtain and consider the Policy Wording or Product Disclosure Statement and Target Market Determination for the policy before you make any decision to buy it. For more information, visit www.qbe.com.au.