Business interruption Losses

You have already seen how a direct loss from fire can shut down a business temporarily. Although property insurance provides money for repairing or rebuilding physical damage that is a direct result of a fire, most property policies do not cover indirect losses, such as the income that is lost while the business is interrupted for the repairs.

A special kind of insurance will cover indirect losses that occur when a direct loss (that results from a covered peril, such as fire) forces a temporary interruption of business. For example:

Weather damage to a toy store in October was repaired by late November and stocks replenished. But by then, it was too late in the Christmas selling season for the store to approach normal sales. Instead of earning the usual 55 percent of its annual volume in December, it earned only 15 percent. A 40 percent loss!

If a prep school that burns down in August can't reopen until November, the school may lose half, or even all, of a school year's tuition.

Business interruption insurance would reimburse policyholders for the difference between normal income and the income that is earned during the enforced shutdown period.

Not only is income reduced or cut off completely during such interruptions, but also many business expenses continue such as taxes, loan payments, salaries to key employees, interest, depreciation and utilities. Without income to pay for these expenses, the business is forced to dip into reserves.

Interruption often triggers extra expenses. For example, a business may authorize overtime to shorten the interruption period, or it may reopen with a skeleton staff (additional payroll) in temporary quarters (additional rent) using leased furniture and equipment (additional overhead). These extra expenses put an additional strain on finances at a time when little if any income is being produced.

A firm can even buy business interruption insurance to protect against interruptions triggered by direct loss on someone else's property.

If a key supplier is shut down by a fire and can't deliver critical raw materials to a manufacturer, the manufacturer's business may be interrupted just as effectively as if the supplier's factory has burned to the ground.

Property damage at the key customer's business may have the same effect. If you depend upon the customer for most of your volume, and that firm's interruption causes them to suspend purchasing, you may be left holding the bag. Their interruption has caused you to lose income.

Every year hundreds of businesses that carry adequate insurance against direct loss of property fail because they overlook the possibility of indirect loss. Don't forget to protect your business against loss of income and unusual expenses that may result if direct loss forces you to close temporarily.

Liability Loss

Every business also faces exposures to liability loss. A business may become legally liable (i.e., responsible for payment) for bodily injury suffered by another person or persons, or for damage to or destruction of the property of others. This liability may be the result of:

A court decision (as in a lawsuit charging negligence)

Statutory provisions (such as a workers' compensation law)

Violation of contract provisions (a contract that makes one party responsible for certain kinds of losses)

PUBLIC LIABILITY

A business may be held liable for injuries or other losses suffered by a member of the general public as the result of the firm's (or its employees') negligence or fault.

A customer in the firm's building trips on a broken step.

A defect in a product causes injury to its user.

A workman who installs a ceiling fan a customer has purchased fails to secure it properly. The fan falls, injuring the customer.

A secretarial firm rents one floor in an office building and signs a lease that holds the tenant (rather than the building owner) responsible for any third party claims for injury or property damage occurring in or on the rented space.

Your daily paper will provide dozens of other examples. A firm that is found legally liable for harming a third party will have to pay damages to compensate the injured party. In cases involving violation of a statute that protects the community as a whole, the court may also award a fine in hopes of discouraging future violations.

Regardless of who wins or looses such a suit, litigation is time-consuming and expensive. No matter how ridiculous or unfounded the suit may be, productive business hours are still lost, lawyers still have to be retained and paid and other related cost have to be met.

Liability to Employees

The government has enacted some sort of legislation that protects the interest of employees who are injured or who contract a disease as a result of job-related activities.

Workers' compensation laws require most employers to compensate employees for loss of income or medical expenses that are a result of work-related disease or injury (except for certain self-inflicted injuries). Should an employee die, as a result of a job-related accident or disease, the employee's family also collects a specified amount.

So far, the exposures we have looked at have all been more or less external to the business. There are, however, several major exposures that have to do with the business itself.

KEY PERSONS LOSSES

What would happen to your business if an accident or illness made it impossible for you to work? What if one of your partners or your sales manager were to die suddenly? Most of us would rather not think about such a "what if." Nevertheless, it is important for you to prepare your business for survival, long before a key person dies or is disabled. Unfortunately, it is a step that is often overlooked.

The following questions address a few problems that may occur.

How will the business survive if the owner becomes seriously ill or disabled?

What will the owner's source of income be? How will it be treated for tax purposes?

Who would "take over" so that the business can continue?

What if that person is not qualified or is a minor?

As the owner of Your own business you deal with problems in an almost daily basis. Being familiar with powerful Problem Solving
Techniques can radically affect the growth of your business.

Even though you Find solutions to your problems, many people are not really proficient in the ways of problem solving, and when
solutions neglect, they mistake themselves for misjudgment. The problem is typically not misjudgment but rather a lack of skill.

This guide Educates you in some problem solving processes. Critical to the success of a business faced with problems is your
understanding of just what the issues are, defining them, finding solutions, and picking the best answers for the situations.

What is a problem. A dilemma is a situation that presents trouble or perplexity. Issues are available in many shapes and
dimensions. For example, it can be:

Something did Not work as it should and you don't know how or why. Something you will need is inaccessible, and something has to
be found to take its place. Workers are undermining a new program. The marketplace isn't purchasing. What do you do to survive?
Clients are complaining. How can you handle their complaints?

Where do Problems come from? Problems arise from every aspect of human and mechanical purposes in addition to in nature. Some
issues we cause ourselves (e.g., a hasty choice has been made and the wrong person was chosen for the job); additional issues are
brought on by forces beyond our control (e.g., a warehouse is struck by lightning and burns down).

Problems are a Natural, everyday occurrence of life, and in order to suffer less from the tensions and frustrations they cause, we
need to learn to manage them in a rational, logical manner.

If we accept The simple fact that issues will arise on a regular basis, for many different motives, and from an assortment of
resources, we could: learn to approach problems from an objective standpoint; learn how to expect some of them; and prevent a
number of them from getting bigger issues.

To accomplish This, you need to learn the process of problem solving. Here, we'll teach you in the fundamental procedures of
difficulty. It's a step-by-step manual which you can easily follow and practice. Since you follow this manual, you will come to
develop some strategies of your own that function in concert with the difficulty procedure described within this guide.

Remember, However, as you read that this is not a thorough evaluation of the art of problem-solving but instead a sensible,
systematic, and simplified, yet powerful, way to approach issues contemplating the limited time and information most company
owners and managers have. Additionally, some issues are so complicated that they need the further help of specialists in the
field, so be ready to accept that some issues are beyond just one person's ability, skill, and desire to succeed.

To be able to Appropriately identify the issue and its causes, you have to do some research. To do this, just list each of the
previous queries in checklist form, and keeping the checklist handy, go about collecting as much information as you possibly can.
Remember the relative importance and urgency of the issue, as well as your time constraints. Then interview the folks involved
with the problem, asking them the questions on your checklist.

After you've Gathered the data and assessed it, you will have a fairly clear understanding of the problem and what the significant
causes of the issue are. Now, you can find out more about the causes farther through observation and extra interviewing. Now, you
should summarize the issue as briefly as possible, list all the causes you have identified, and record all the regions the problem
appears to be affecting.

At this point, You're ready to check your comprehension of the problem. You've already identified the problem, broken down it to
each of its aspects, narrowed it down, done research on it, and you're avoiding typical roadblocks. On a huge mat, write down the
problem, including each of the factors, the areas it affects, and what the effects are. For a better visual understanding, you may
also want to diagram the problem showing cause and effect.

Study what you Have written down and/or diagrammed. Call in your workers and talk about your analysis together. Based on their
opinions, you may choose to revise. As soon as you believe you fully understand the causes and effects of the problem, summarize
the issue as succinctly as easily as you can.

Proceed through your Long list of alternatives and cross-out those that clearly won't work. Those ideas aren't wasted because they
impact on these ideas that remain. To put it differently, the best ideas you pick may be revised based on the ideas that wouldn't
work. With the remaining solutions, use what is known as the"Force Field Analysis Technique." This is basically an analysis
technique which breaks the solution down to its positive results and negative outcomes. To do so write each solution you are
considering on a different piece of paper. Beneath the solution, draw a line vertically down the center of the paper. Label one
column benefits and one column downsides.

Now, some more Analytical thinking comes in to play. Analyzing each facet of the solution and its influence on the issue, list
each of the advantages and disadvantages you may think of.

1 way to help You think of the benefits and disadvantages would be to role-play every solution. Call in a few of your employees
and perform out each solution. Ask them for their reactions. Based on what you see and on their feedback, you will have a clearer
idea of the advantages and disadvantages of each alternative you are considering.

After you Complete this procedure for every solution, pick those solutions which have the Many advantages. Now, you ought to be
considering only two or three.

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