A business interruption calculation sheet can provide a clear, organised account of the extent of your lost income and additional expenses incurred during periods of disruption to your operation. It is vital, not only to accurately understand the financial impact this period had on your company, but also to help make any business interruption insurance claims as compelling as possible.
When faced with an unexpected incident disrupting your operation, stress levels are naturally high. In such a situation, the last thing you’ll want to do is take more time away from resolving your issues to compile data and information. However, when it comes to reclaiming lost funds, it’s not enough to just claim that your business lost money — you need to be able to prove it.
This is where a business interruption calculation sheet is truly invaluable. In this blog, we will discuss what this is, and outline the key components that UK business owners should try to include.
Guide to Business Interruption Calculation Sheets For UK Business Owners
Business interruption calculation sheets are documents used by company owners to quantify the true financial impact of a disruption to their day-to-day operations. The purpose of this sheet is to provide a clear and concise account of all of a company’s lost income and the expenses incurred during a time of interruption, primarily for insurance purposes.
Such a disruption can result from various sources, including extreme weather, fires, or any number of other incidents that would force a business to reduce its service, or cease it entirely.
Business interruption insurance is a form of coverage catered to the income lost as a result of such incidents. However, in order to make a successful claim, it is important to ‘show your workings’ with accurate documentation. This is where a business interruption calculation sheet comes into the picture — as a means to highlight your findings in as clear and concise a way as possible.
What You Should Include on a Business Interruption Calculation Sheet
When preparing your own business interruption calculation sheet, it is important that you include any and all information that would provide context and reflect the extent of the financial impact your company was hit with as a result of a period of interruption.
From accurate data about firm revenue before and after the incident, to information highlighting the costs associated with mitigation efforts, stock wastage, and beyond, there are a large number of things to consider including on your business interruption sheet. If you want to come out the other side with a positive outcome, it’s important that you reference as much relevant information as possible during the process.
Below are a selection of some of the most critical elements that should be included:
Your Revenue Pre and Post Interruption
A key component that your business interruption calculation sheet should be built upon, is a detailed comparison of the total revenue generated before and after your operation was affected.
This step will involve collating multiple months’ worth of historical financial data, highlighting your business’s revenue trends when operating at full capacity. You should then compare this information against relevant figures during the period of interruption. This will allow you to simply establish a baseline for calculating the income lost at this time.
Fixed and Variable Costs
It’s also important that you differentiate in your sheet between fixed and variable costs. Fixed costs refer to outgoings that remain consistent regardless of the business’s activities, such as salaries, rent, and payment instalments.
On the other side, variable costs are any outgoings that fluctuate with the extent of your operation. An accurate assessment of these differing costs is essential in determining the extent of the company interruption’s financial impact.
Extra Expenses Incurred Due to Interruption
Did you incur any additional expenses during your period of interruption in an attempt to mitigate and minimise its impact? If so, you’re not alone. Most directors in your position would, and have, done the exact same thing.
However, you must make sure that such expenses are documented as they can be included in your claim, meaning these additional costs can be recovered. Some examples of extra expenses that may be incurred in this manner include costs relating to temporary relocation, overtime wages for staff, and emergency orders of necessary items.
Projected Revenue Losses
Your business interruption calculation sheet should also include an up-to-date projection of the total revenue that the company was expecting to earn but for the incident taking place. This process will, naturally, involve some level of forecasting. To do this, check things like historical revenue trends, the market condition at the time, and seasonality.
Inventory and Stock Losses
If your restaurant is forced to close for a period and is, as a result, unable to serve customers, what are you expected to do with your inventory? Should any of your stock be spoiled while you’re not able to sell it, this loss should be documented on your sheet.
You should include all parts in the chain of produce, whether it be raw materials you’ve not been able to do anything with after delivery, works in-progress, and finished goods that were damaged or no longer sellable for any reason due to the interruption.
Adjustment for Seasonality or Market Trends
Some types of businesses will find their margins are beholden to the season. Therefore, if you own such a company, you need to take this into account when calculating the impact of an interruption. It’s crucial that you adjust your figures with such factors in mind and provide as accurate an assessment of your situation as possible. This will ensure that your business interruption calculation sheet reflects a fair estimate of your losses based on what would have been expected during the period in question.
Additionally, a hospitality company struck by an interruption a month before the COVID-19 lockdown took hold will have been required to take this into account when compiling their business interruption calculation sheet. They would have been unlikely to be able to claim revenue as per their historic trends, as the market would not have allowed for this, even if the interruption hadn’t happened in the first place.
Supporting Documentation
Your calculation sheet should be supported throughout by thorough and accurate documentation to back-up any point made. This can include:
- Financial statements
- Tax returns
- Sales records
- Invoices
- Contracts
By including such key documentation, you go a long way towards legitimising your claim and providing much-needed evidence to insurers or any other relevant party involved in your claim process.
Savings Made As a Result of Interruption
While your mind is unlikely to be immediately drawn to where you could save money when you’re faced with a serious disruption, and it isn’t going to make a dent compared to your lost earnings, you should still consider any savings made.
There are some areas where you can expect to cut costs as a result of an interruption. This can include some staff and utility costs, the price to purchase stock from suppliers, and much more.
In the name of total transparency, it’s vital that you include any such saving costs in your business interruption calculation sheet.
Inquesta Forensic: Trusted Support For Your Business Interruption Claim
The creation of a thorough, well-crafted business interruption calculation sheet is a vital tool in the arsenal of UK-based business owners facing the aftermath of a disruption to usual operations. It goes far beyond simply listing numbers on a page; it involves detailed documentation, careful differentiation between costs, accurate forecasting, and adjustments for external factors like market trends and seasonality. All these elements put together make this document essential in presenting a strong case to insurers, in order to demonstrate the true extent of your loss, and ensure maximum odds of an equitable settlement that brings a difficult period to a satisfying conclusion.
Inquesta specialises in supporting company owners with their interruption claims. We understand the many complexities that come with such situations, and are on hand to help you navigate the process and achieve a fair outcome.
If you need expert assistance with your business interruption claim, you’re in the perfect place. Inquesta Forensic’s expert team offer a number of key services to corporate clients, including resolving commercial disputes, business valuations, and issues of lost profits. Contact us today to learn more about how we can help.
