Do you do your due diligence?
You wouldn’t buy a house without undertaking a survey and doing some background checks and due diligence. So why would you take a different approach when expanding your nursery?
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 Is and crossing the Ts.
That’s where your insurance provider may be able to help. By informing them before you’ve signed on the dotted line, they can help you with your due diligence.
Your insurance provider can check is 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 purchase is in a high flood risk area, insurers may choose to place 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, by doing your due diligence before expanding your nursery you will know what potential issues you may be facing.
Has the business/property been appropriately insured in the past?
Another thing your insurance provider can look at is what insurance has the business/property held in the past.
A few years ago when working with a client who was purchasing a new nursery to add to their portfolio, whilst conducting due diligence on behalf of our client, we identified 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 sale. An appropriate adjustment in the price of the sale was undertaken and the client went ahead but with a full understanding of any risks of underinsurance.
Slotting the new business into your company structure
Often when nurseries are expanding, under advice from financial advisors, they will change their company structure. Setting up a holding organisation above their existing structure and/or create new subsidiaries below; this, of course, makes perfect business sense. However, some businesses forget to tell their insurance provider about the changes. Not informing your insurance provider about changes to your company structure may result in policies sitting with the wrong entity, compromising your insurance protection.
For example, ‘Nursery X’,
Nursery X Ltd originally owned one setting but decides to expand and acquired a number of new settings. They purchase all the new entities and therefore have a number of additional companies that need to be insured. Their accountant recommends they set up a parent company so all the entities can be placed within the group, Nursery Y Group Ltd. Unfortunately, they fail to advise their insurance provider of this change. What happens when a Directors & Officers Liability claim occurs against Nursery Y Group Ltd? As you can see, structures and entities can quickly become complicated and insurance is then a minefield.
It’s therefore essential that if you have any changes in respect of your company structures due to purchases, funding or changes of interest, 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. So whatever your plans, we wish you the best of luck and don’t forget to reach out to your insurance provider and keep them in the loop with relevant changes to your nursery business.