Saturday, 29 August 2015

When your business burns down.

A few quick lessons on insurance and accounting will be yours when your business burns down. 

Our lesson came August 17th.  You were warned that contents and small tools could add up but may have forgotten about built-ins like sub-panels, compressors, custom fabrications to make things work.  The word "small tools" didn't ring the right bells.   They weren't on the balance sheet any longer but cost plenty to replace.

You may think that naming a second-hand replacement value for major equipment means that's what you get when it's lost.  Correction, it's the lower of named value and what something sort of similar can be bought for.  Perhaps, like us, you hadn't heard of "aggregate value" meaning you can lump the major items together and make up on one what is lost on another.

Then you lose control of your books.  Your depreciation values mean almost nothing and the replacement values are unknown until you settle with the insurance people.  Your productivity may surge back with replacement equipment of lesser value but your equity that the bank wants to know about becomes a mystery.  One cheering thought is that the insurance proceeds are not taxable income.  Another is that you find out your neighbours care about you. We're bouncing back and expect the settlement to be just barely enough but it's a sobering squeaker.

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