Whether you own a large retail business with tens of thousands of items in stock or a small consulting business that operates from home with little more than a laptop and cellphone, your business has inventory. That means you need to know how to handle inventory tracking for insurance purposes to ensure you have the right business insurance coverage and access it quickly when it's time to file a claim.
The process of keeping track of inventory can feel daunting at first. Still, it's one of those projects you'll be glad you got taken care of when you need to use the information you compiled following a catastrophic or destructive event. If you need to know more about the property and contents coverage on your business insurance policy, give us a call today to speak to an experienced commercial broker at Morison Insurance.
Before we dive into the whys and hows of inventory tracking for insurance purposes, you may wonder what "inventory" means in this context. Inventory is not your commercial building or the elements of the building, like the HVAC system. Instead, it's all the belongings within your commercial space, whether that means, retail stock, fabricated or manufactured products, or even food ingredients in a hospitality business.
So why is it so important to manage inventory tracking for insurance purposes? There are three big reasons why this is a necessary project that business owners or managers need to compile and regularly update through the years.
As a business owner, you have business insurance coverage that includes commercial property insurance and probably some other types of property-related coverage, such as commercial crime insurance. Those policies have a coverage limit that determines how much insurance compensation you are eligible to receive to put toward replacing your stock, equipment and other items should they be stolen, damaged or destroyed in an event such as a natural disaster or a fire.
It's crucially important to ensure that the coverage limits on your business insurance policies are high enough to match the replacement cost of your business contents because if the replacement cost is higher than your coverage limits, you'll be forced to pay out of pocket for the difference. The best (and realistically the only) way to ensure you have the insurance coverage you need is to create a thorough system of inventory tracking for insurance so you know precisely what you have and how much it will cost to replace it.
If the worst-case scenario happened and your commercial building burnt to the ground, would you be able to remember every last item that was destroyed off the top of your head? Even if you have a relatively small number of items to recall, there's a good chance you would miss something—and in all likelihood, there's even more there than you might think.
It's essential to remember that after a catastrophic event like a fire, everything is thrown into upheaval, and the days and weeks that follow can be extremely chaotic and stressful. That stress makes it even more difficult to recall everything that was destroyed and needs to be replaced. You don't need the added hassle of frantically trying to compile an inventory list from memory after the fact. If it's already prepared and ready to go, you not only have the reassurance of knowing it's complete and accurate, but it takes a massive burden off your shoulders at an essential time so you can focus your attention on other matters.
When it's time to file an insurance claim, your insurance provider will request a lot of detailed information about the stock, equipment and other business contents that need to be replaced so they can determine how much insurance compensation you are eligible to receive. The more detailed, high-quality, well-organized information you can provide, the easier and faster the entire insurance claims process will be.
When part or all of your commercial contents are destroyed or otherwise lost, you need to replace them as soon as possible so you can get your business operational again and resume
bringing in income. A long, drawn-out claims process involving plenty of back and forth about what has to be replaced and exactly how much it will cost to replace it brings your progress to a halt and makes it much harder to keep your business afloat until you can resume normal business operations. Suppose you've already taken care of inventory tracking for insurance purposes. In that case, the entire process will go much faster and easier, and you'll be able to get the compensation you're entitled to so you don't have to pay out of pocket for replacement costs.
Now you know why investing your time in inventory tracking for insurance is so important, but what's the best way to go about it? There are many different types of inventory management. If you run a retail business, you're already part of the way there because you likely have an inventory system where you record incoming stock and subtract inventory sales to maintain accurate sales records. If you don't have a system like this in place, it's critical to get one for more than just insurance reasons and it's just as essential to keep it diligently updated on a daily basis so you know what's coming in and what's going out.
When it comes to inventory tracking for insurance purposes, you can use many methods to compile information in an inventory list, such as spreadsheets, downloadable inventory sheets, asset tracking software and numerous inventory app options. In most cases, digital options are going to be the easiest to manage because it's simple to alter them as necessary by deleting or adding items, but also because they give you the ability to easily create a visual inventory by adding photos or even video of bigger-ticket belongings and your most valuable assets.
Finally, it's vital to note that your inventory list should be backed up in multiple locations. You may have a copy saved on your hard drive, a copy on cloud storage, and a copy you've printed. Out of the three, cloud file storage services are the most helpful option because you can access them from anywhere, even if your computer, server and paper files are destroyed or lost.
It's not enough to make a list with your items' names (or nicknames) when you're doing inventory tracking for insurance purposes. You need to annotate each item on the list with as much information as you can gather about it, including:
For stock, you also need to include both retail and actual cash value, where you obtain your stock from, and how fast it can be replaced if necessary. You may not be able to get all this information for every item, and that's understandable. But the more complete you can make your inventory tracking for insurance, the more helpful and practical it will be when you need it most.
This content is written by our Morison Insurance team. All information posted is merely for educational and informational purposes. It is not intended as a substitute for professional advice. Should you decide to act upon any information in this article, you do so at your own risk. While the information on this website has been verified to the best of our abilities, we cannot guarantee that there are no mistakes or errors.