Harrisburg Forensic Accountants Calculate Business Interruption Losses

Reliable, comprehensive services for insurance companies and policyholders

One of the greatest and most potentially damaging business risks is temporarily ceasing operations. There are many circumstances that could temporarily shutter your business, such as a natural disaster or civil unrest. Since such perils can be devastating to a business, companies purchase business interruption insurance usually as part of their business owner policy.

Unfortunately, when it comes time to file a claim, accounting for losses can be enormously complex for policyholders. Insurance companies are vigilant when paying business interruption claims because information from policyholders can sometimes be incomplete or vague and could even be fraudulent. This can lead to unnecessary delays in compensating policyholders for legitimate covered losses.

Insurance companies and policyholders can rely on Breon & Associates, Accountants and Advisors in Harrisburg to clarify the facts and determine the amount rightfully owed. Employing advanced diagnostics, we’ve developed over decades of experience; we produce accurate valuations of losses. We also assist attorneys whenever litigation is necessary to facilitate a fair outcome.

The essentials of business interruption loss calculation

Business interruption insurance is meant to compensate claimants for profits they lost when a covered peril results in a business shutdown or slowdown. To provide this compensation, the insurer must know the extent of the losses. The calculation of loss is performed to determine how much money the business would have made “but for” the fire, the flood, or other peril that forced them to close. Ultimately, the insurance policy defines coverage, limitations and waiting periods, all of which drive the result of the loss calculation. There are several important factors in this calculation including, among others:

• Period of Loss (Restoration) – It is critical to determine how long it took the business to recover from the peril. The period must be of reasonable length when the facts and circumstances are all considered. There could also be a waiting period before the clock starts. Also, if the policy provides for a period of time to ramp your business back up; it is important to know when this time begins and ends.
• Gross Revenue During the Period of Loss – To reach an accurate estimate, we look at the revenue for prior periods, adjusting for factors such as seasonality, growth, market trends, and other outside factors. We evaluate financial statements, tax returns, business plans and projections, sales records as well as other business documents to calculate gross revenue that was lost during the interruption.
• Continuing / Discontinued Expenses During the Period of Loss – Businesses have two general types of operating expenses during the period of loss–those that often continue to be incurred during the interruption (think leasing costs and white-collar salaries) and those that stop or decline while the business is not operating (think non-exempt hourly wages and utilities.) Under certain circumstances, business interruptions could also produce extra expenses when attempting to minimize damages or restart a business, both of which could add to the total loss of income. Distinguishing between these types of expenses is an important aspect of the calculation. We review your key source documents, such as invoices, leases, and bank statements, to draw this distinction.
• The Calculation – There are two general methods for calculating losses referred to as the top-down approach and the bottom-up approach. These methods make general reference to the income statement and whether discontinued expenses are subtracted from gross revenue (top down) or continuing expenses are added to net income (bottom up) to arrive at the loss.

Business and Personal Property losses are not directly part of a business interruption calculation. These parts of a claim are usually handled by an adjuster; however, Breon & Associates can assist by evaluating the underlying business documentation used to calculate these losses.

Determined opponents of fraud who support insurance litigation

Unfortunately, business interruption claims are fertile ground for insurance fraud. In fraud cases our forensic experts have assisted insurance investigators and attorneys at all stages of litigation. In numerous cases, we proved that insured parties exaggerated losses in an attempt to reap unwarranted windfalls . If you are concerned that a claim may contain fraudulent losses, consult our antifraud experts as soon as possible. We can provide the solid evidence you need to avoid excessive payouts and can even appear as expert witness to testify to our findings.

Industry-specific knowledge enables detailed calculations

At Breon & Associates, our forensic accountants have extensive experience with various industries, such as:

• Construction
• Manufacturing
• Retail
• Pharmacy
• Healthcare
• Transportation
• Warehousing
• Mining
• Professional Services
• Government / Not for Profit

This specialized knowledge enables us to perform a deeper dive into an organization’s business interruption losses for more thorough and accurate analysis.