Every business owner strives to protect their company from financial risk exposure in the wake of industrialization. But being successful and profitable consistently is not assured when it comes to business ventures. Any form of risk may be crawling around the corner, be it inevitable disasters like fire or damage in machinery that could put your business in a spot. Thanks to the loss of profit policy, you can run your business without any capital losses in times of peril and disasters. One way that companies leverage this policy is by subscribing to a fire loss of profit policy, which reimburses any losses to your business stocks and property by fire accidents and floods. Let us dive into what is loss of profit policy is and how to calculate the loss of profit policy for your company in case a disaster ensues.
What is the loss of profit policy all about?
In hard times like, say, riots, fire accidents, external damage to machinery, your company ceases to function when your sales hit rock bottom and expenditures increase. At such perilous moments, subscribing to a loss of policy can help your business gain a foothold again. Thus, it is highly recommended to subscribe to a Consequential loss policy through insurance brokers online. Loss of profit insurance policies such as fire consequential loss policy and machinery loss policy covers a wide range of benefits apart from liability coverage (in simple terms, the cost of property damaged). This gives a brief about what is loss of profit policy.
Delay by startup policies supporting startups to revamp their growth-
Apart from these conventional policies, there are several advanced loss of profit policies, such as the delay in the startup insurance policy. The delay in startup policy reimburses the losses incurred by the delay of completion of the project, which can have a sound impact on the company.
You can consult insurance brokers online to know about such schemes and which suits your company based on the mainstream business you do. You have to provide a calculation of the net profit from the day of the disaster to the time your business is estimated to be normal to the insurance brokers online in order to claim for the liability damaged. So this is the part that most business owners find complicated.
How is loss of profit calculated?
- Calculating the gross profit ratio-
The first step involves calculating the gross profit since the loss of profit can be calculated by multiplying the gross profit by the short of sales that year. You’ll get the gross profit by deducting the cost of goods from your income from the previous year. So the gross profit ratio is calculated as follows.
Gross profit rate = Gross profit/income last year *100
- The next step is calculating the shortage of sales due to fire. So short of sales is actually the difference between the standard turnover of your business and the actual turnover in the disaster period.
- The third step is calculating the profit loss during the disaster.
Profit loss= short of sales*gross profit rate/100
- This is the most crucial step that involves claiming the profit loss incurred by the disaster via the consequential loss insurance policy. You can calculate it as follows:
The total claim= loss incurred * insured value/total cost.
This means if you have taken a 2,00,000 insurance policy for 2,50,000 stocks, then you are eligible for an under insurance of 50000. Here the insurer and the insured stocks will be the co-insurers of 100000 and 50000, respectively.
Loss of profit policy can help your business in hard times, compensating for the losses incurred by your business and the loss of rent, and the special expenses like advertisement campaigns to run your business smoothly amidst such situations. So the best you can do for your business is get in touch with insurance brokers online and get a loss of profit policy covered for your business.