BIKE SHOP INSURANCE

The long road to recovery

The majority of insurance claims are for fairly minor losses. It could be a grab and run theft of a display bike – this would be a pain to deal with, but the business can carry on as normal while you line up a replacement.

However, when you think over your bike shop’s insurance, you need to embrace your inner doom-monger to ensure you are equipped to survive major disruptive events.

The need for this is made startlingly clear by research which suggests that following a disaster 25% of businesses never re-open, and even more close down within the following 18 months. For those that do survive, the support of a well-considered Business Continuity Plan (tied to well-structured business interruption insurance) is critical.

Business Interruption cover for a bike shop will be arranged on a Gross Profit basis. To establish the right cover you want to consider your maximum recovery period (indemnity period) – when will the results be back to their pre-loss position – and to calculate your annual gross profit taking into account what costs are variable and what costs are fixed in relation to your turnover (gross profit sum insured).

To help, here’s our guide of things to consider when reviewing how a cycle retailer can recover from a major disaster such as a devastating fire.

3 main stages of recovery

Rebuilding and reopening
How long will it take to get the property back to a position where it is fit for trading?
Balancing expenses during the storm
What fixed costs do you have? How will you manage these when trade grinds to a halt?
Getting back to full fitness
How soon after can you restock your store and attract your customers back?
Rebuilding and reopening
How long will it take to get the property back to a position where it is fit for trading?
Balancing expenses during the storm
What fixed costs do you have? How will you manage these when trade grinds to a halt?
?
Getting back to full fitness
How soon after can you restock your store and attract your customers back?

How long will it take to rebuild?

Probably longer than you first think.

There are so many factors that will go into how long it may take to rebuild a property, all make it extremely difficult to predict with any certainty exactly how long reinstatement will take, it pays to be cautious – RICS surveyors often recommend that preparations are made for reinstatement periods in excess of 18 months.

Before the first brick is laid time will need to be invested in investigating the original loss, confirming the full support of the building insurer, clearing the debris, drawing up plans, and attaining planning permission (a lot may have changed since the building was first erected, plans will be assessed against today’s standards).

Once the reinstatement project is approved there could be a challenge sourcing appropriate labour and materials to complete the job, particularly if there are specific complexities requiring highly-skilled tradespeople or specialist, increasingly hard-to-come-by materials.

How could trade be affected long-term?

Long-term damage can be caused by disruption to trade.

How confident are you that your customers will return to you if you have been out-of-action for a year/18months?

You may believe you have very loyal customers, but has this loyalty ever been truly tested to the extent that they have had to take their bike elsewhere for its most recent service – or that having habitually come to your store to buy their gear, a rider has since started buying online with next-day delivery. Can you get them back in store, and how long will it take before sales figures are back to where they were pre-loss?

If you have an exclusivity deal with manufacturers/distributors that draw a lot of custom to your store, this may also be stress-tested if your shop has to close its doors for a prolonged period. How could that impact your forecasts?

And the recent stock supply issues are well documented – if you needed to replace all your stock in one swoop, how much of a challenge will this present? And at what point will you need to commit to orders, and at what cost, in order to ensure the shop will be well-stocked when you can open back up?

What fixed costs could you continue to face?

Not all costs can be turned off overnight.

There will be some costs that will directly correlate with turnover – for example the less mail order items you send out, the lower your postage and packaging costs. However, there will be some financial obligations that you are likely to still have to meet to keep your bike shop afloat while trading is suspended:

  • Rent – perhaps surprisingly the majority of commercial leases stipulate that the tenant must continue to pay rent even while the property is undergoing major repairs and cannot be used.
  • Wages – staff with permanent contracts will need to be paid, even if the shop cannot open and you cannot put their labour to positive use – you’ll want to retain your trusted workforce.
  • Utility costs – this will depend on how your accounts are set up, but it’s likely there will be a standing charge that will apply regardless of a reduction in usage.
  • Stock¬†– Do you have ongoing contractual commitments with distributors to adhere to, will you be able to simply flick a switch and stop buying in goods?
  • Loans & Credit Payments – If you have borrowed you will have a set time schedule to follow for repayments, can this be adjusted to reflect the disruption to your incomings?
What will happen to your staff?

You’ll want to retain your talent.

You may have longstanding employees with a wealth of product expertise and mechanical experience backed up by recognised qualifications.

If the doors have to close, how quickly will outgoings outbalance incomings? How long can you afford to keep your highly trusted and highly skilled workforce on the wage roll while you are in recovery mode?

Employment protections could make it difficult to make any sudden changes to your team – and beyond the practical restrictions you’ll probably want to try and keep your team together and looked after during this unsettling period.

What will happen at the end of the indemnity period?

Insurer support drops off.

Business interruption cover stops providing support at the earliest of the following three points:

  1. Once the business has recovered and is trading again at its pre-loss level
  2. Once the indemnity period limit has been reached
  3. Once the gross profit sum insured limit has been paid

This is why it is so important to ensure you have confidence in the limits you set, you will be left to fend for yourself in building back the business.

This is why it is best to over-estimate timeframes and costs, give yourself some breathing space. You do not want to be in a position where the much-relied upon insurer support cuts off after 12 months, when you are still 3 months away from reopening.

If you have a long business interruption indemnity period and a high sum insured it is very much in the insurer’s best interests to help you back to your pre-loss position as early as possible – everyone will be committed to the same goal.

Our Insurance Expert

Ben has been helping businesses of all sizes put in place the right insurance for years. He joined Bikmo in 2021, and is now 100% focussed on insurance for bike shops and the cycling sector.