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Law for Business

Knowhow - guidance - precedents

06 SEP 2012

Business Interruption - not to be underestimated

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Ben Waterton - Partner, Lockton, https://www.lockton.com/

Firms have inevitably found trading conditions challenging in the current economic conditions. These challenges are widely understood but what happens when this is compounded after disaster strikes and it is difficult or impossible to carry on with business as usual? Also who picks up the tab when revenues plummet and costs increase?

A cunning plan

The first essential is a business continuity or disaster recovery plan. While lots of firms know what they would do if their computers failed, not every accountancy practice has a broader plan that covers every aspect of their operation.

Given that 80% of companies without a plan go out of business within the fol­lowing 12-18 months, the importance of being prepared cannot be over-stated. Even if the ‘disaster' lasts only for a short time - say a week or a month, many busi­nesses are unable to recover from the loss of income and fold as a consequence.

Directors don't need to think of every eventuality - since many disasters are by their very nature, not foreseeable. The important thing is that they should be prepared - so they know how they would manage - whatever the problem.

When we are considering what practices can do to reduce the costs of disaster planning, we often advise them to plan in three stages: communicate, manage, recover.


In the first phase of any disaster recovery, communication is key. During incidents speed and accuracy of communications is vital since invariably information is incom­plete and changeable. This type of crisis communication is different to business as usual when there is more time to prepare, think and respond.

Websites and hotlines are good for leaving messages for public access. Company intranets can be used for communication with staff. Text messages can also be used to send out information proactively. A firms ‘battle box' should have a template for hotline, text and web messages as a prompt for the kind of information that needs to be included.


Whilst this first phase of emergency communication is being put into action, a senior team needs to meet at a pre-arranged venue offsite to review the business continuity plan and consider the impact of the actual disaster (whatever the cause). In the 9/11 disaster in New York, many companies had picked locations that were within the same disaster zone so now businesses often rely on telephone business conferencing as a backup to face to face meetings.

Key considerations for senior management will be the impact on staff, business partners (such as suppliers or distributors) customers and press. The area that is most often overlooked but the most critical is supply chain continuity. If necessary supplies or services that you are reliant on cannot be de delivered to the business, this can rapidly result in loss of business possibly leading to loss of market share or reputation.

Another key consideration if premises are not going to be usable for some time is where can the firm operate? The obvious options are to use a third party that offers both workplace facilities and IT in one package. Alternatively, staff might be relocated in other offices or to nearby empty buildings available for rent.


Whatever companies do, they are likely to face the ‘double whammy' of reduced revenues and increased costs. So how can they recover financially?

Most businesses buy insurance that will cover them against loss of assets - for example if premises are destroyed by an explosion, damaged by fire, or ruined by burst pipes in a cold snap.

Smart, or well advised businesses, will also buy business interruption cover that will indemnify them against losses if they are unable to gain access to their premises - for example when the police erect a cordon around a dangerous area, or when water damage caused by freezing conditions makes a building unsafe, or unusable. The aim of the insurance is to ensure that the business is in the same position financially after a disaster, as it was before. Insurance can be bought to cover no access to premises for anything up to 48 months - though most busi­nesses opt for 24 months.

Knowing that there is a financial cushion in place makes it much easier for firms to honour their commitments to clients - and so preserve the firm's reputation.

We believe that a combination of business continuity planning and business interrup­tion insurance shows clients and stake­holders that yours is a well run practice. And it can make the difference between keeping, or losing the all important work in these tough times.

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