What’s a Business Continuity Plan?
How do you deal with uncertainty? Successful business owners understand that everything begins with a plan. A business continuity plan puts into writing the steps your business would take to survive if death, disability, or disaster were to occur. How would your business react if one of these business-rattling events happened to your company?
That’s what a business continuity or succession plan spells out.
What’s in a Business Continuity Plan?
When drawing up a business continuity plan, identify and list each event that can disrupt your company or practice. What can put a crimp in your business? Fire, floods, theft, and cyber-attacks are some of the more common events that can disrupt and even put companies out of business. The death, permanent disability, or departure of an owner, a partner, or key employee can also hurt your company financially if it impacts your ability to provide the same level of service or customers perceive lower quality.
How do you protect yourself financially against these risks? Plan to limit or eliminate risk where possible, and insure against the rest.
Some steps that could help manage risk might include raising workstations or assembly lines to limit flood damage. Or your company might have a physical backup location from which to continue its business or an offsite facility to back up computer data should your location become damaged. You should also have a succession plan in place so the responsibilities of key employees are covered.
Insure the Rest
If you manage all the risks you can manage, insure the rest so that you limit your financial losses when the unexpected happens. Different types of insurance cover different losses. For example, your property insurance or business owner policy (BOP) insures your physical structure against loss should fire, wind, rain, or other perils named in the policy damage it. It can also reimburse you for some expenses if your business is interrupted.
Other types of insurance can give you financial peace of mind in different scenarios:
Business Interruption Insurance – Your property insurance may help you rebuild, but what about your company’s lost income in the interim? Business interruption insurance helps replace your company’s lost income due to fire, theft, and other covered occurrences. The key word here is covered because not everything that can hurt your business will qualify. For example, many – if not most – business interruption insurance policies did not cover closures due to pandemic restrictions.
When an event is covered, however, this insurance will reimburse a portion of your normal operating expenses, such as rent or mortgage payments, taxes, employee payroll, and even relocation costs. Some comprehensive BOP insurance packages will include business interruption insurance as part of overall packaged coverage.
Business overhead expense insurance – Business interruption insurance won’t pay benefits if you or a partner becomes too disabled to work for a significant length of time, even when it interrupts the flow of your company, but business overhead expense (OE) insurance will. OE insurance is especially important for small professional practices or businesses in which you or a partner are virtually irreplaceable. This type of insurance will help pay your company’s fixed operating expenses while you are absent, up to pre-established limits. These expenses could include:
- Payroll
- Contributions for employee benefits
- Office expenses: utilities, equipment, and more
- Dues and fees
- Debts: payment for accounting, billing, and collection services
- Installment payments on existing business debt
- Rent or mortgage and property taxes (if applicable)
- Insurance premiums to cover other insurance (property and liability insurance, employees’ life insurance, and disability insurance)
Key Person Insurance – Owners aren’t the only people whose absence is almost irreplaceable. The absence of a key employee, such as a head of sales or chief technical officer, can hurt your company financially, too. Like OE insurance, key person insurance protects your business if an essential employee who isn’t an owner becomes disabled.
Know Your Policy
These policies, like most types of insurance, may come with waiting periods before benefits begin. Lifetime and event limits and deductibles may also apply. Your advisor can help you determine what type of benefits your business needs.
The Bottom Line
You can’t wholly eliminate risks from your business, but you can prepare to deal with them. A business continuity plan can help you tie everything together by addressing your risks, identifying the steps you take to mitigate some losses, and including these business-specific insurance policies.
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