Avoiding Insurance Audits That Put A Crimp In Your Cash Flow

Breweries run on cash flow. Purchasing raw materials, new equipment and making payroll are top of mind, but one often neglected item can put a serious crimp in your cash flow for a couple months making brewing life more difficult…Insurance Audits.  Below, I outline how to best avoid big audits and keep your cash flow flowing.

First, your liability policy premium is based on your brewery’s revenue and your work comp policy premium is based on your brewery’s payroll.  At year end, these insurance policies are audited by the carrier to ensure they received enough premium to cover your exposure. If you overstated your revenue and payroll at the beginning of the policy, you get a refund. If revenue and payroll were understated, you owe the carrier more money.

In the current craft beer environment where revenue and payroll are growing as fast as can be, there are never refunds.  Craft beer is booming, increasing brewery revenue and increasing payroll as more production time is needed and tasting room hours are expanded. This means audits where you owe the carrier more money, sometimes big money.

How do you get ahead of this?  Have quarterly, or at the least bi-annual updates, with your insurance broker.  Re-estimated what your revenue and payroll will be for the policy year so you aren’t hit with an audit at the end of the year that can run into the thousands or even tens of thousands.  This is especially important since this audit will hit when you are making down payments (typically 20% of the total premium) on your renewal policies. If you are making down payments on the renewal policies and paying off big audits on your previous policies, you could be pinching your pennies to pay for the more important bills that keep production running at full speed.

Moral of the story…update your insurance broker regularly when you know your revenue is increasing or your production time is expanding. It is better to pay the addition premium you owe during the policy year on the payment plan than in one big lump sum at the end of the policy year.