The aftermath of a natural disaster can be devastating for all business owners, especially for those in the dealership, restaurant and hospitality industries, and can cause long-lasting interruptions in normal business operations. If you don’t have proper business continuity planning or a disaster preparedness strategy, the fallout can be even more detrimental. It is paramount to review business continuity recovery strategies in the event of any interruption from a natural disaster.
Are You Prepared?
Here are five business interruption action items that you can put into place now that will help ensure your business is positioned for a strong recovery after the storm.
- Demonstrate that the business was profitable before the storm and be able to quantify its profitability. This includes having monthly or even daily profit and loss reports before the storm.
- Show the financial results during the indemnity period, typically on a more granular level. This means that daily sales reports, banking information, payroll information, etc. must be maintained.
- Clearly show any loss of inventory and/or equipment, so the maintenance of inventory and asset records is tantamount. Take pictures of any damaged items. Document any delays to supply resulting from the event.
- Maintain detailed records, such as invoices, to account for any additional costs incurred on temporary repairs, such as generator rental, additional security, etc. These costs are essential to demonstrate that you made efforts to mitigate damages.
- Review your insurance policy and understand its coverage. What is the business interruption coverage? Work to determine the proper indemnity period and reach out to your agent with any questions.
What Is Business Interruption Insurance?
Business interruption insurance aids the insured in recovering lost income caused by damage to the insured’s property when an unexpected natural disaster hits. Depending on the policy, additional expenses incurred to return to normalcy may also be covered.
Once it is determined that a business interruption claim is appropriate, it will be important to read the policy and determine how the loss will be calculated. Generally, contracts refer to actual losses resulting from the inability to conduct business as a result of physical destruction or damage. It is important to calculate the actual lost profits as well as expenses, such as emergency repairs, incurred by the insured during a restoration period to return the property to its pre-loss condition.
Commonly, historical financial results are used to determine whether the projected profits being offered as damages are realistic. The lost profits are not intended to be speculative but rather reasonably certain. For dealerships, lost profits could include items such as service, parts, F&I, etc. For hotels and restaurants, lost profits could include down rooms, food spoilage, cancelled reservations, etc. It is not uncommon to look to the prior twelve months immediately preceding the event causing the claim.
Filing Requirements for a Business Interruption Insurance Claim
The required information needed to file your claim may include the following:
- A detailed list of damaged property, including cost, quantity, and estimated value.
- Federal and state business income tax returns for the last two years.
- Financial statements, if any, for the last two years.
- Monthly profit and loss statements for the last twenty-four months.
- Damaged/lost inventory report at date of loss.
- Payroll records for the previous twenty-four months.
- Invoices for expenses used in calculating the loss and for additional expenses incurred.
- Loan agreements and record of payments over the past twenty-four months.
- Bank statements for the past twenty-four months.
Anyone filing a claim should expect that the insurer will request and review those items used to determine the claimed loss.
Finally, because filing a claim requires the provision of specific data, and the objectives of the insured and the insurer are often diametrically opposed, it could be helpful to engage professionals to assist in the preparation of damage calculations and the provision of underlying data in support of them.