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When a business interruption happens, there are many considerations and moving pieces to consider. After taking the first critical steps (filing a report, documenting losses and capturing all relevant operational business information) and identifying if your incident is covered under your property coverage or business interruption insurance, you’ve identified what you can pay your staff. After this, you begin to look to look at the long-term impact of this incident on your business.
As a business owner you have many tasks to complete each year to ensure the successful operation of your business from deciding whether or not to buy a new piece of equipment to providing direction to your employee group. While it is easy to focus your time in the day to day running of your business, it is important to annually review your business interruption coverage to ensure you have enough to cover a loss that may occur during the policy period.
If you are expanding your business, you should be speaking with your insurance broker to ensure your level of adjusted accordingly with the charges in revenues. In many cases, the coverage level selected a few years ago will not be sufficient to fully cover 100 percent of a suffered loss. If you buy less insurance then you require, you are coinsuring a potential loss. What this means is the insurance company will only pay their pro-rata share of the loss and your business will absorb the remaining loss. The limit of insurance should insure the expectations for the future 12 months.
For example: Business A’s owner does not understand why the full loss after a business interruption was not covered. In discussing the incident with her advisor, she discovers she had set the limit of insurance five years ago when her business was generating revenue of $1 million.
Now the business is generating revenue of $5 million, but the business owner did not annually adjust the limit of her insurance. Unfortunately, the business is under insured and the loss will be subject to a co-insurance penalty.
You want to hire a qualified advisor to help you determine the amount of the loss but your business is closed and not generating income. A full review of your insurance policy will identify if you have coverage for the professional fees you will incur related to preparing your claim. A qualified advisor can assist in calculating the losses, reviewing the calculations prepared by the insurance company and gathering the information requested by the insurance company.
Now that you’ve spoken with your advisor about how costs are calculated and what the impact will be for your business, the next step in getting your business back on track is to gather the information to support your claim. In our final article in this series, we’ll share a valuable checklist that will help guide you through the process.
Nadine Wightman, CPA, CA, CBV, CFF, is a Partner with MNP’s Valuation and Litigation Support group in Saskatoon. For more information on business interruptions, contact her at 306.664.8381 or [email protected].
Related Topics:Business Resilience; Risk Series
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