How to Prove Business Interruption Loss of Revenue

An unexpected interruption of operations is one of the biggest challenges a business owner can expect to face. Whether a result of extreme weather, a cyber attack, or issues with your key suppliers, a sudden disruption can result in significant financial losses that will only grow and grow the longer the interruption persists. This will leave business owners scrambling to recover.

As a company owner or director, you’ll likely know better than anybody that protecting your business from such issues is vital to securing its long-term future — but proving the extent of your business interruption loss of revenue and actually reclaiming what you’re owed can be even more important, and likely highly complex. 

In this guide, we’ll walk you through the essential steps to prove business interruption loss of revenue effectively. From gathering key evidence and calculating lost income, to reviewing your insurance and preparing a detailed claim, we’ll provide you with a comprehensive roadmap to navigate these difficult and testing waters. 

With the right preparation and strategy, you can maximise your chances of securing the level of compensation you deserve, ensuring your business has the opportunity to get back on its feet with speed and efficiency.

What is a Business Interruption Loss?

A business interruption loss is the actual financial loss that can be attributed to a business when its operation experiences a period of disruption. This includes lost income, ongoing operational costs, and additional expenses necessary to resume operation and restore the company’s income/profit to the expected level. 

Business interruption losses can come about as a result of a number of different reasons, including: 

• Damage to Premises: Issues such as fires, floods, storms can cause damage to a company’s property and make it unusable for normal operations, preventing it from properly generating revenue. 
• Cyber Attacks: A cyber attack can disrupt a company’s operations. Digital systems can be taken down, and card payment machines can be rendered unusable. 
• Supplier Issues: A number of unforeseen circumstances can affect a firm’s suppliers, which can in turn impact your company’s operations, ultimately leading to a loss of income.

Proving The Extent of Business Interruption Loss of Revenue 

In order to prove a business interruption loss of revenue, start by first documenting the cause of the interruption, with documentation on-hand to establish the validity of your claim. Other vital steps, among many, include calculating lost revenue, providing a detailed breakdown of lost income and continued expenses. Additionally, you can strengthen your claim with a well-organised report. 

The ultimate process to conclusively prove business interruption loss of revenue is complex, and can contain a number of moving parts. 

Aspects to consider include:

1. Document the Cause of the Interruption

It’s important that you gather any and all evidence that might support your case. This can include: 

• Official reports to verify the incident leading to your interruption actually took place. This can include police and fire reports, and documentation pertaining to an official government inquiry. 
• Photographs and videos to act as documented visual evidence of any physical damage that may have taken place
• Any media coverage the incident may have received, including coverage of a well-documented issue in the area causing your problems, or coverage of your specific case. 

Providing thorough evidence and documentation can be an incredibly compelling addition to your case and improve the legitimacy of your claim. 

2. Review Your Insurance Policy

If you’re aiming to prove business interruption loss of revenue, in order to determine how much you can claim on your interruption insurance, you must first take steps to review your firm’s policy. Reasons to do so include: 

• Coverage: Business interruption insurance is highly unlikely to cover everything, so understanding what you’re covered against could be essential information to have going in. 
• Limits: It’s important to review the limits of your coverage and determine if there are any deductibles to cover before your policy kicks. 
• Duration: It’s also recommended that you review your indemnity period. This is the time in which your business interruption loss of revenue will actually be covered — the length of which will vary greatly depending on your coverage.

3. Calculate Pre-Interruption Revenue

Before you apply for any lost revenue, it’s important that you determine a baseline for what you’ve missed out on. To do so, it’s recommended that you determine a 12-month period prior to the interruption that encapsulates what you would see as a normal, expected business cycle. This can then be compared against the figures of what actually happened, and the difference can be used as something of a barometer to start things off. 

It’s also important that you remember to take into account your firm’s growth. Revenue from 18 months ago may not stack up against what you would have earnt if your company has experienced strong growth in the intervening period. If your business had been growing prior to the interruption period, you should try to show as much evidence as you can of this. Look to things like industry benchmarks, how peers are doing, and analysis of your year-on-year sales numbers. 

4. Calculate Post-Interruption Revenue

With the amount you would have earned in mind, it’s now time to look at the actual figures. You should be able to provide a clear month-by-month comparison of your performance for both before and after your operations were stalled/halted. 

It’s important that you make sure to distinguish between revenue declines caused by your interruption from those that could have occurred regardless (due to factors like seasonal downturn or economic instability). 

5. Estimate the Lost Revenue

Using your collated historical data, you should then able to create a revenue projection model to more accurately showcase what your revenue figures would have looked like had the interrupting incident never occurred. 

6. Account for Continuing and Saved Expenses

Naturally, when your operating-norm is no longer possible, your expenses will look different. It’s important that you understand and highlight clearly which of your costs are fixed and which are variable. 

Fixed costs are those outgoings that will continue no matter what. Common examples include things like: 

• Rent 
• Insurance 
• Wages for key staff 

On the opposite end of the spectrum, variable expenses are those costs that will decrease or stop altogether for a period when your business slows down or stops operating. This includes: 

• Utilities 
• Materials 
• Stock 

It’s important that you consider the savings made as a result of any reductions to variable expenses. 

7. Document Additional Costs Incurred

On the contrary, there may be some costs that will only arise during this period of upheaval — outgoings that wouldn’t have taken place, that are now necessary to keep things ‘ticking over’. Examples of such expenses include those to repair your premises or equipment, or those associated with keeping your business running despite issues (hiring additional staff, renting a short-term location, etc.) 

If you have any such additional costs, you should maintain records of all expenditures. This can be essential for anybody looking to prove the extent of their business interruption loss of revenue. 

8. Provide Evidence of Efforts to Mitigate Losses

As a business owner/director, you can’t be expected to wait for whatever issue has arised to resolve itself. You have a right to do what you can to generate income during this period. If you were to conduct any such alternative revenue-generating activities to reduce the impact of the reduction in income to your business, such as moving sales online, or offering alternative products or services, you need to be sure to document and explain them in your claim. 

The terminology often used in this context is that company directors are expected to take ‘reasonable steps’ to minimise their losses. It is your responsibility to show that any mitigation efforts you undertook were ‘reasonable’, considering the circumstances you’re facing. 

9. Prepare a Detailed Claim

To accurately prove the extent of your business interruption loss of revenue, you should ensure that your report outlining your claim is prepared and thorough. Include aspects like the initial cause of the issues, your calculation of revenue lost, as well as a breakdown of your expenses and mitigation attempts. 

You can utilise visual elements (chart, graphs, and tables) to simplify complex financial data in order to make your claim easier to understand. Also be sure to include all relevant supporting documents (receipts, invoices, reports, photos, and videos). 

10. Consult with Professionals

As the process to prove your business interruption loss of revenue amount is highly complex, it may be prudent to consult with a specialist who can support your case. The most common expert to support your case is a forensic accountant. 

Forensic accountants will be able to help prepare detailed and accurate financial projections and loss calculations that will withstand scrutiny, to support your business interruption claims. 

Additionally, a forensic accountant is specifically trained to take complex financial data and present it in a more digestible way — making your evidence as clear to understand as possible and, in turn, boosting your odds.

Inquesta Forensic: On Hand to Support Your Case at Every Stage 

As you can see, the actual process to prove business interruption loss of revenue is by no means a small feat — it requires meticulous documentation, highly precise calculations, and a deep-rooted understanding of your business’s current situation. 

While the steps outlined in this guide are intended to provide a strong foundation for building your case, seeking professional guidance to strengthen your case and boost your odds can make all the difference. 

At Inquesta Forensic, our dedicated team of forensic accountants are experts when it comes to business interruption claims, providing clear and accurate financial analysis to support your case. 

With our experience in the field, we can help clients carefully navigate these complex financial waters and offer keen insights that extend beyond business interruptions including fraud investigations, business valuations, commercial dispute resolution, and much more. 

If you’re needing to prove business interruption loss of revenue or are faced with any other financial issues, don’t leave anything to chance. Get in touch with a member of the Inquesta Forensic team today and discover for yourself how we can help to protect your business for both the short and long-term, minimise your losses, and strengthen your financial future.