Now is the Time to Prepare Your Business for Hurricane Season by Daniel S. Hughes, CPA/CFF/CGMA, CVA
June 1 marks the start of the Atlantic hurricane season and the potential for tropical force winds and heavy rainfall to damage property and impede business operations. The key to minimizing losses and getting your company back up and running after a storm is to have an actionable plan in place before the National Weather Service issues a hurricane watch.
Unlike property insurance that covers physical damages resulting from a natural disaster, business-interruption insurance (BI) is intended to cover the loss in income a business suffers when it is unable to resume normal operations due to physical loss or damage to business property resulting from a covered peril. As businesses have learned from the pandemic, not all BI policies are created equal, and some may exclude perils that do not result in direct and tangible physical damage to property.
Your ability to recover economic losses from a hurricane is dependent on a wide range of factors. This includes the extent and detail of your recordkeeping capabilities and your attempts to mitigate further damages and expenses, both of which will ultimately affect the final loss quantification. The more attention you pay to maintaining, managing and storing accurate records, the better equipped you will be to substantiate and quantify the losses you sustained.
For example, having accurate and up-to-date documentation of your business’s past, present and future financial performance is one of the best ways you can demonstrate the income you could have generated had the covered peril not occurred. Critical records you should have at the ready include three to five years of financial statements, tax returns, sales forecasts or backlog reports, historical budgets / forecasts, general and subsidiary ledgers and other accounting journals for parent companies and their subsidiaries. You should also have a detailed accounting of your current operations, including records of inventory, pending and fulfilled sales orders, as well as fixed-asset schedules that itemize every piece of equipment the business owns along with the dates of the equipment was purchased and put into use and the depreciation of those assets. Many astute business owners go one step further, creating a digital video of their facilities and assets along with a detailed audio narrative describing their offices, production facilities, warehouses, showrooms and other assets.
All the records you create to substantiate economic losses should be preserved and stored in a safe location, protected from storm damage and easily retrievable once a storm passes. While fire-proof boxes and off-site storage facilities are still viable options, cloud-based storage services may be better for security, convenience and immediate access to your files.
Finally, it is always good practice to annually review your property damage and business interruption insurance policies to understand the types and amount of coverages that are in place. You do not want to learn about a gap in coverage or limitations on your policy after you incur a loss.
The time to plan for a hurricane or other unpredictable natural disaster is not a week, days or hours before impact. Rather, businesses should consult with their advisors now to review existing policies and take steps to ensure their records are up-to-date and safely preserved through the next six months. Doing so will make a significant difference in your ability to substantiate and recoup losses.
About the Author: Daniel S. Hughes, CPA/CFF/CGMA, CVA, is a director with Berkowitz Pollack Brant’s Forensic and Advisory Services practice, where he helps clients in the United States and abroad prepare, present and settle complex business interruption and physical damage insurance claims. He can be reached at the CPA firm’s Miami office at (305) 379-7000 or info@bpbcpa.com.
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