Insurance Matters: When Cash Flow Becomes Cash Trickle

Insurance Matters: When Cash Flow Becomes Cash Trickle

By Steve Shechter, Guest Writer

Last issue (February), we talked about insuring your most important employee (that would be you). This time, I’d like to talk about insuring your most important physical asset — your inventory.

The largest and most complex businesses work very hard at analyzing their exposure to loss. They don’t necessarily insure against all potential losses, but their decisions are based on a solid grasp of the exposure. In this column, I will give you some ideas on how you can do that for the most important business in your life — yours.

You probably have already purchased insurance to protect you from loss by theft or destruction of your inventory and your truck. That’s a good start, but there’s more to be considered.

Any business must consider the total financial impact of a loss. The money you have invested in your inventory is only the beginning. When you think about it, your business is all about increasing the value of our inventory by displaying it in your mobile showroom and getting customers interested in buying it.

When you have a serious loss, your ability to do that comes to a screeching halt. You can expect your insurance company to pay you the value of your truck and your cost of your inventory. But what happens to your gross profit that you would have earned while you are out of commission waiting for a new truck and new inventory? This is when cash flow becomes cash trickle.

What makes your business different from, for instance, a hardware store is the fact that you are mobile. A hardware store can buy a property insurance policy that protects against business interruption from loss to the business premises. But your “premises” are a truck, and while that doesn’t really change the exposure that much, it does mean that you will have to ask your agent if he or she can provide you with coverage that will replace your lost gross profit if your truck and/or inventory are lost. These exposures are known in the insurance industry as “time element” exposures. They are the result of the passage of time after the loss.

How serious is this exposure for you? You can easily get a rough idea by following these basic steps:

1. Guess how long it would take you to replace your truck. If you estimate fewer than four weeks, you are being too optimistic.

2. Determine your sales during this period of time. To be safe, use your best month. Subtract your normal expense, but NOT what you pay yourself. This will give you your gross profit.

3. Estimate your continuing business expense — such things as advertising, rent, insurance, truck payment, other loan payments — anything that would continue even if you were not doing business while your truck and inventory are being replaced.

The sum of 2 and 3 is your time element loss.

You’ll want to work with an insurance agent who is willing to take the time to understand your business and offer you coverage options so that you can make an informed decision about how to insure the goose that lays the golden eggs.

Of course, no matter what insurance you buy, you are always better off without a loss than with one. Safe business practices and good security features, such as alarms and GPS devices, can reduce the chances of your having a loss and, in many cases, qualify you for insurance discounts. 

The information in this column is not intended to be a substitute for qualified legal or tax advice.  

Steve Shechter is the president of Evans Insurance Agency in Akron, OH. He can be reached at [email protected] or (330) 535-8157.

You May Also Like

BCA Bearings Unveils 2024 Endless Summer Promotion

The Endless Summer promotion runs from May 1 through June 30, 2024.

NTN, the parent company of BCA Bearings, is proud to announce the launch of BCA’s 2024 Endless Summer promotion. During the promotion, BCA’s warehouse distributor customers can earn BCA-branded, premium merchandise with orders of BCA wheel hub assemblies, bearings and seals.

“We are thrilled to announce the BCA Endless Summer promotion” said Patrick Cronin, Marketing Manager, Automotive Aftermarket. “The Endless Summer theme evokes a relaxed and carefree feeling that we all strive to achieve; the same carefree feeling we want associated with using our premium parts. We are looking forward to summer and another great promotion.”

ZF Expands SACHS CDC Shock Line for U.S., Canada

The release expands ZF’s line by more than 70% reflecting growing demand for advanced damping technology in the aftermarket.

Philips Announces Xperion 6000 LED Under Hood Work Light

It features a motion detection switch that allows mechanics to turn the light on and off with a wave of their hand.

Snap-on Announces Latest Software Release

The latest software includes new coverage, guided component tests and features.

Continental Tire Opens Retread Solutions Center in South Carolina

The company said it hopes to uncover new improvements and technologies to innovate the retread process.

Other Posts
Philips Announces GoPure GP5212 Automotive Air Purifier

It uses a 3-layer filter to deliver cleaner, healthier, fresher air on the go, Lumileds said.

AACF Launches 65th Anniversary Fundraising Initiative

The campaign aims to raise $65,000 through 1,000 donations of $65 each.

Standard Motor Products Announces 123 New Numbers

The release provides new coverage in 53 distinct product categories and 47 part numbers for 2023 and 2024 model-year vehicles.

BendPak Founder Don Henthorn Passes Away

Grew company from small machine shop to global leader in car lifts and garage equipment.