We’ve all heard these chilling reports and that’s why you carry commercial property insurance to cover physical assets in the event of catastrophe. But what about the income you lose and expenses you must continue to pay should your business temporarily shut down? Here’s where business interruption insurance comes in. It replaces financial losses and expenses you must continue to pay during a shutdown related to a covered weather or fire event. So, any income you would have earned had the event not occurred plus any expenses you must continue to pay while your business is temporarily shut down are replaced. Here are five key areas it covers in your business:

• Cash flow. Business interruption insurance replaces the income your business would have earned had the event not occurred, ensuring cash continues to flow into your business even if you’re temporarily closed.
• Working capital and equity. Rather than seeing your assets shrink and debts increase due to expenses you would still have to pay during a temporary closure (i.e., payroll, mortgage, taxes, loan payments, temporary workplace expenses and more), business interruption insurance covers these expenses. As a result, your working capital, short-term business health, and solvency are protected.
• By providing coverage to protect revenue and cover expenses, your business has the help it needs to protect profits during a shutdown and more quickly return to normal once a shutdown has ended.
• During a temporary shutdown, business expenses may increase to cover costs associated with an interim workspace (i.e., rent). Rather than seeing your cash on hand going to cover additional expenses, business interruption insurance can protect it by covering costs associated with having to open a temporary work location.
• Maintaining cash flow, working capital, and equity plays into the formula to determine your bonding rating, which can impact your ability to bid on and secure future work.

Anything not covered by your business interruption insurance, as well as the premium you pay for that coverage, are deductible on your income statement. What’s more, depending on your business’ structure, a business loss, if incurred, can be carried forward into future years if not used up in the current year.

In addition to the financial protections business interruption insurance affords, it can also help with employee retention and productivity by covering payroll during a temporary closure.  Considering today’s challenges recruiting and retaining talent, keeping payroll going during a shutdown ensures your business will have the staff needed to ramp up productivity as soon as the shutdown is over.

Finally, extreme weather or fire events usually result in more contracting jobs following the event. By having business interruption insurance, you not only keep your business running, but also equip it to take on additional work—and that benefits everyone.

About the author: Robert Marchione, CPA, is the director in charge of the Construction Industry Practice of RBT CPAs, which is a leading accounting, tax, audit and business advisory firm serving construction companies in the Hudson Valley for more than a half century. Mr. Marchione joined RBT CPAs, LLP, in 1981, becoming partner in 1987 through 2022. He has more than 40 years of experience with the firm himself and can be reached at [email protected] or 845-567-9000.