Maximizing Your Business Asset

Written by Stephen Henshaw, P.G., President & CEO, EnviroForensics
As seen in June 2011 issue of Cleaner & Launderer

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Just a few short years ago it was nearly impossible for me to have an open and honest discussion with dry cleaners about the possibility that soil and groundwater beneath their business might be impacted with dry cleaning solvents. Understandably, dry cleaners were scared that the value of their business would be diminished if such conditions existed. Environmental investigations and cleanups can be costly and legal bills alone are more than many businesses can afford. Hiding one’s head in the sand does little to build or preserve a business as an asset.

Over the years I have preached the merits of looking for old insurance policies, normal everyday comprehensive general liability (CGL) policies, to see if they can be utilized to assist in funding site investigation and remediation costs. Even though we have countless success stories in this unique, specialized business area of finding the funding to pay investigation and cleanup costs, rarely a week goes by where we discover a dry cleaner that is either unaware that old policies have great value or they think that there is a better day ahead to implement this strategy. The reality is that with few exceptions, there is no time like the present.

Common excuses we hear include: “I’m afraid that if I clean up now, pollution found in the future would be my responsibility; if contamination is found on my site I will lose my customers; I will lose my lease if contamination is found beneath my business; and no one will buy my business if they discover contamination.”  

None of those excuses have much merit. For example, if a site is cleaned up and contamination is found in the future, then chances are the operation your running today is causing contamination and you need to stop and address that immediately. With regard to the notion that customers will stop honoring your store if contamination is found, there is no evidence that that would be the case. In fact, if you have the right message and you are being a good steward of the environment by being proactive, you will keep customer loyalty. As for the fears that you will lose your lease, the truth is that you have much greater chance of keeping a lease by being proactive than reactive. Property owners may be looking to refinance or sell the property. It is at this time when you will get the knock on the door that notifies you that contamination has been found in the soil or groundwater. At this point, an unsophisticated landlord may not have the time or patience for you to develop a strategy. Finally, it would be a real surprise if you find a buyer of a dry cleaner without them having conducted soil and groundwater sampling. I see it once in a while on contract sales, but within a few years, the new owners might need financing from a bank or contamination might be discovered. Such scenarios usually don’t end well and the company or individual that sells the business remains on the hook for the contamination.   

My experience is that owners of dry cleaners can be classified into a few categories: 1) those who want to grow their business; 2) those who want to sell their business; and 3) those who are just trying to survive and eke out a living.

For those of you that want to grow the business, having a clean bill of health and a business free of soil and groundwater contamination are essential. If you are invested in building your brand you do not want to have the threat of contamination jeopardize those plans and all of that hard work. Developing a proactive strategy to address environmental conditions is a fundamental part of growing a business in this industry.

If you are trying to sell your business, soil and groundwater contamination will devalue your business. As mentioned, even if you are able to sell the business on contract you cannot get out of the chain of responsibility. The long arm of the law states that those responsible for environmental contamination include past and present business owners, operators and property owners, among others.

I would be out of line to suggest that every dry cleaner considers their business as an asset. In these difficult financial times many dry cleaners have seen gross sales drop 20, 30 even 40 percent over the past few years. These dry cleaners are just holding on in hopes that the economy in their area will turn around and sales will pick up. While it may be true that your business doesn’t have the value today that it once had, getting stuck paying for an environmental investigation and remediation and the associated legal fees can bring sure financial ruin if all of your options are not evaluated, including finding and evaluating your old insurance policies.

In the end, old insurance policies may be your biggest asset of all. They have value and can be used in multiple ways, ways that may not be intuitive if you aren’t in that line of work. Whether the old insurance policies pay for defending lawsuits and claims, funding environmental investigations and remediations,  or simply cashing out the insurance policy for money, there may be real value in that old paper. Waiting for the other shoe to drop is not a real business strategy.

If you take away just one thing from this article, it is that finding your old insurance policies may be the single best business decision of your life and the most profitable. If you have your old policies, save them in a fire proof and water proof safe or in your safety deposit box at your bank. If you don’t have your old policies, there are insurance archeology services that may be able to find that information. Call us or email us with your questions we are in your corner. Environmental liabilities won’t go away, but we won’t either.