How Much Business Continuity Coverage Do I Need?

How much money would your organization need to stay open after a major claim?

The answer is more than you think. Most small businesses never reopen after a closure. They run out of money.

They cannot pay their employees and cover basic expenses while their business is shut down. Their customers move on, and when the business is ready to reopen, too much momentum is running against them.

That said, there are two things you can do as an operator to make sure this doesn’t happen to you.

1. Develop a solid business continuity plan in the event of an interruption to your business. If you need one, we can provide a sample. A good plan can go a long way toward minimizing your downtime.

2. Second, make sure you carry enough Business Income and Extra Expense coverage to keep you afloat while your business is closed.

Here is a simple way to think about how much you need:

(Disclaimer – there are a lot of nuances to business income coverage, so this should not replace a proper coverage examination.)

(Monthly Net Income + Monthly Continuing Expenses)  x  The Number of Months to Reopening  =  Total Money Needed.

Every business is different. Suppose your business highly depends on a physical space to operate (school, daycare, residential program). In that case, you may need to find a replacement location after a fire, water damage, or other catastrophe. This means additional rent money, costs of moving your equipment, etc. If you cannot find a secondary space, you need insurance to replace your business income and expenses until you complete repairs.

Take some time to plan what you would do in a business interruption situation. It could make all the difference.