Business Interruption claims for new businesses
Analysis without Historicals
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How do you look at a business interruption claim when there is no historical data to project what would have happened had they stayed open?
This can either be extremely simple, or very hard. If the interruption was for a short period of time, the daily records from pre-loss can be used to project what would have happened. However, when such a small amount of data is available, some post-loss data must be utilized to project backwards. This is easier to understand when the interruption is for a long period of time. However, it's harder to do this, because the claim might have to be analyzed before the business reopens.
If this is the case, one way to project what might have happened is to look at any pro-forma statement that may have been prepared for the opening of the business. Often, a bank will require a pro-forma statement in order to grant a loan to a business. A pro-forma statement is a projection of what the business is expected to do, in the form of an income statement. Based on that, one could do a calculation by taking the projected net income and adding any expenses the business had to pay while it was closed.
However, this calculation is only a preliminary calculation. After the business reopens, a second calculation should be done using the actuals to project what would have happened for real. If the actual results are close to the projected, that's great. However, it's probably not likely. Which just means more work for me!
This can either be extremely simple, or very hard. If the interruption was for a short period of time, the daily records from pre-loss can be used to project what would have happened. However, when such a small amount of data is available, some post-loss data must be utilized to project backwards. This is easier to understand when the interruption is for a long period of time. However, it's harder to do this, because the claim might have to be analyzed before the business reopens.
If this is the case, one way to project what might have happened is to look at any pro-forma statement that may have been prepared for the opening of the business. Often, a bank will require a pro-forma statement in order to grant a loan to a business. A pro-forma statement is a projection of what the business is expected to do, in the form of an income statement. Based on that, one could do a calculation by taking the projected net income and adding any expenses the business had to pay while it was closed.
However, this calculation is only a preliminary calculation. After the business reopens, a second calculation should be done using the actuals to project what would have happened for real. If the actual results are close to the projected, that's great. However, it's probably not likely. Which just means more work for me!
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