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The hidden costs of a business interruption

On Behalf of | Jun 25, 2021 | Uncategorized |

An interruption to your business operations can be devastating to company finances. When you can’t continue producing products or providing services, your revenue can drop to absolutely nothing.   

Most companies concerned about an interruption primarily focus on the loss of revenue. However, there are many other secondary costs that people don’t immediately think about when a business can’t operate. You need to consider those costs before settling a business interruption insurance claim or making other financial decisions.  

Your obligation to employees will continue 

Unless you immediately terminate or lay off your staff when your company closes, you will probably still have obligations to some of them. Salaried workers will expect to continue to receive their wages. Hourly workers in receive benefits will still need payments made on those even if you suddenly have to take them off the schedule. You will also need to keep paying into workers’ compensation and unemployment in most cases.   

Companies that have to temporarily close sometimes aggressively lay off and terminate workers, but that has a cost on its own. Locating and then training new employees when you can resume business could cost your company thousands of dollars and weeks of effort.  

Your facility expenses will continue 

Unless your commercial lease includes a special clause that lets you stop paying rent during an interruption to business operations, your landlord will expect you to keep making payments. The same will be true of any bank if you actually own your facilities.  

Even if your business shuts down completely, you will likely still accrue utility costs every day. There will also be taxes and insurance to cover, even if your business doesn’t have any current income.  

You may need to relocate or rebuild 

Depending on what caused your closure, moving your business may be the best response. If a natural disaster destroyed your building or nearby infrastructure, you may need to move somewhere more accessible or safer. These costs could require tens or hundreds of thousands of dollars depending on how much you have to physically move and how much specialized infrastructure you require in your facilities.  

Understanding some of the hidden or secondary expenses associated with a business interruption can help you negotiate a claim with your insurance provider or respond to litigation brought by a creditor or your employees.