Expanding Your Business… The Insurance Implications

Expanding your business

Are you aware of how your insurance company can help you make better choices when you’re expanding your business and buying new settings? asks Jackie Hyde

In today’s fast-moving market, where acquisitions and new settings are a daily occurrence, we are seeing that in their haste, nursery owners sometimes aren’t dotting the ‘i’s and crossing the ‘t’s.

Do you carry out due diligence? You wouldn’t buy a house without undertaking a survey and doing some background checks. So, why would you take a different approach when buying a business?  That’s where your insurance provider may be able to help. By informing them before you’ve signed on the dotted line, you can be sure of expert input.

Your insurance provider can also check if there are any risks associated with the property’s location. In recent years, insurance companies have taken a stronger stance on properties liable to flooding. If the property you are looking to buy is in a high flood risk area, insurers may choose to place a higher excess on the policy, which you will need to budget for. In some cases, the insurer  may decide that the property is too risky to insure. You may then need to source alternative insurance if available.

The seller’s insurance

Has the business or property been appropriately insured in the past? This is another thing your insurance provider can look into. A few years ago, when working with a client who was buying a new nursery to expand their business, we established that the current and past covers were not providing adequate protection.

This enabled our client to consider what risks they would be taking on if they proceeded with the purchase. An appropriate adjustment in the price of the sale was undertaken and the client went ahead – but with full understanding of the risks of under-insurance.

Change in structure

Often when expanding your business, under advice from financial advisors, you will change your company structure. This could mean, for example, setting up a holding organisation for your existing structure and/or creating new subsidiaries. This, of course, can make perfect business sense.

However, some businesses forget to tell their insurance provider about the changes. Not informing your insurance provider about such changes could result in policies sitting with the wrong  entity, compromising your insurance protection.

For example…

Let’s take a common scenario. Nursery X Ltd owns one setting but decides to expand and acquires a number of new settings. They, therefore, have a number of additional companies that need to
be insured. Their accountant recommends setting up a parent company so all the entities are now in Nursery Y Group Ltd.

Unfortunately, they fail to advise their insurance provider of this change. What happens when a directors’ and officers’ liability claim is brought against Nursery Y Group Ltd?

As you can see, structures and entities can quickly become complicated and insurance is then a minefield. So, it’s essential that if you make any changes to your company structure due to purchases, funding or changes of interest, you contact your insurance advisor so that your insurance policies are amended accordingly.

We are seeing a lot of sales and acquisitions in the nursery sector at the moment – and we wish them the best of luck – but don’t forget to reach out to your insurance provider and keep them in the loop about changes to your nursery business so that your insurance policies are amended accordingly.