This issue - AMA Tasmania

Imagine being forced to close your business
Jane Wilson
Loss of trade, wages in lieu of notice, ongoing
payment of fixed expenses, relocation to
alternative premises, advertising costs
associated with relocation. These are just
a few of the obstacles you would need to
overcome if you were forced to close your
business due to unexpected circumstances
such as a fire or storm damage.
It can happen to anyone
Christmas is usually the peak trading period,
but that wasn’t the case for a Melbourne
pharmacy when it was forced to close its
doors a few weeks before Christmas. Situated
in Station Street, Fairfield, the building and
contents sustained severe water damage after
a large truck drove past the pharmacy and
pushed a “bow wave” of accumulated storm
water into the shop. The main street had been
completely flooded after heavy storms caused
the drains to overflow.
The extensive water damage meant that
the building had to be completely gutted
and contents removed. Only a year earlier
the shop had undergone a total refit so the
existing plans were able to be used to repair
the interior structure. Although the owners
missed out on all of the increased trade over
the Christmas period trading resumed six
weeks after disaster struck.
How vulnerable is your business and how would
you survive financially if you suffered a total
loss due to fire or water damage? Would you
run the risk of losing your clientele to a nearby
competitor?
In the case above, the indemnity period
applying to the Business Interruption cover
was sufficient to safeguard the ongoing
viability of the business. But in some instances
the indemnity period can expire before the
business income returns to its pre loss position
as was the case for the pharmacy owned by
Martin Neumeyer at Dodges Ferry, near
Hobart.
Martin’s selected indemnity
period wasn’t sufficient ...
Picture a small shopping centre with six
shops. Mr Neumeyer’s pharmacy was one of
four shops totally gutted by fire in July 2005.
Unfortunately the fire started in the adjacent
second-hand goods store which was not fitted
with wired-in smoke detectors. Early detection
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often minimises the amount of damage
sustained, but in this incident the fire spread
quickly to the surrounding premises.
Mr Neumeyer’s12 month indemnity period
expired on 6th July 2006 and, regrettably, on
this occasion the 12 month indemnity period
provided by the policy didn’t allow sufficient
time for the premises to be rebuilt.
Why? The process of rebuilding was beyond
the control of Mr Neumeyer. Rebuilding was
repeatedly delayed during the intervening 12
months. Builders in the area were in short
supply. Everyone knows that most builders are
generally overcommitted to multiple jobs at
once. This was the case for this project.
Through no fault of Mr Neumeyer or his
insurer, this meant that his selected indemnity
period fell short of the period required for
the landlord to reinstate the buildings and
ultimately allow the business’ income to return
to pre fire levels.
... and the pharmacy
couldn’t be relocated
No premises were vacant for lease in the
immediate locality so the pharmacy couldn’t
be relocated to resume normal trading.
Temporary walls had to be constructed within
the shell of the burnt out building, which
reduced the floor area considerably. Lack of
floor space meant there were no consulting
areas, no proper departments or signage. Mr
Neumeyer had to dramatically reduce the
amount of stock available, which also lowered
takings.
Apart from the obvious inconveniences, a
significant challenge was being forced to
conduct business in a temporary structure
within an existing premises. Regular customers
- especially the elderly - were bothered by
the makeshift operating conditions and were
inconvenienced by not being able to use a
consulting area when having prescriptions filled
or seeking advice. As with many businesses,
pharmacies rely on their location and repeat
customers, both of which can be jeopardised
if disaster strikes.
Picking up the pieces
The challenges outlined in these loss situations
are encountered in every major claim. In
extremely stressful circumstances, business
owners often have to spend considerable
time saving their business, project managing
the reconstruction or repair of their destroyed
or damaged property, and then manage their
insurance claim. They must continue to pay
fixed expenses (interest payments on loans,
lease payments on property, equipment or
vehicles, wages to key employees, rates, phone
bills, etc.) even if their income stream has been
temporarily interrupted or halted.
A quick survival checklist
After reading about these case studies, ask
yourself these questions. If you were faced
with a significant or total loss situation, i.e. fire:
• How quickly could you re-establish your
business in a nearby location?
• Would you be able to find another premises
easily accessible by your customers?
• How long would it take to fully regain a
level of trading experienced prior to the
loss?
• How quickly could you replace the
specialised equipment required to operate
your business?
How to prevent this
happening to you
Before any loss occurs it is vitally important
for you to have the right type of insurance
protection to suit your needs. It is essential
for you to provide accurate income and gross
profit figures and allow for any anticipated
growth trends when you take out business
interruption cover. Additionally, give serious
consideration to selecting an appropriate
indemnity period that suits your specific
circumstances - the length of time you choose
could make or break your business.
Guild can provide expert advice on business
insurance that is tailored specifically to meet
your individual needs. Make sure your business
will survive if you are forced to temporarily
close your doors. Contact Guild today on 1800
810 213 because, when the worst happens,
we’re the best there is.
Guild Insurance Limited AFSL No 233791