The last decade has brought a stark reminder of the vulnerabilities UK businesses face from adverse weather conditions.
From flash floods to heatwaves and fierce storms, natural events are increasingly causing significant disruptions. With over £500 billion in economic losses in the UK over the past 40 years, and a notable £10 billion lost in 2022 alone due to extreme weather businesses must confront these challenges head-on.
One of the most significant financial risks businesses face today is weather-related disruption, which often leads to operational downtime, loss of revenue, and damage to reputation. In 2023, businesses and homeowners collectively saw £4.86 billion in insurance payouts, with £443 million specifically for business weather damage claims - the highest ever on record.
The rise of hybrid working and dispersed teams makes continuity even more complex, with some employees affected by local weather issues while others are not. It's clear that businesses, especially small ones, must better prepare financially and operationally for such disruptions.
As a tax expert, I see firsthand how businesses can struggle with these challenges. Preparing financially for adverse weather isn't just about recovery, it's about resilience. Below are actionable tips to help business owners better navigate and mitigate the financial impact of adverse weather conditions.
1. Build an Emergency Fund
One of the most practical ways to prepare for unexpected weather events is to create an emergency fund. This pot of money should be separate from working capital and is there to ensure you can cover fixed overheads during business interruptions. Depending on your business type and size, consider saving enough to cover at least one month’s worth of fixed expenses such as rent, salaries, and utilities. Stress testing your cash flow is essential. Allocate a percentage of monthly revenue toward this fund and adjust based on your business’s peak and low periods.
2. Review and Update Insurance Policies
Ensuring you have adequate insurance coverage is fundamental. With rising insurance premiums and more frequent exclusions for weather-related events, it's vital to regularly review your policy. It’s equally important to ensure you're not just focusing on premiums but understanding the specifics of what’s covered, especially if you've recently moved premises or expanded. If your business relies on physical assets, ensure your insurance covers damage from floods, storms, and other potential disruptions. Don’t wait until after a disaster strikes to find out what’s missing.
3. Expense Tracking for Disaster Relief Claims
In the event of a weather disaster, meticulous record-keeping is crucial for claiming insurance or disaster relief funds. Use cloud-based accounting software to track costs related to the event by setting up specific expense categories. This will not only simplify the claims process but also provide clear records should you need to access government support or tax relief.
4. Cash Flow Forecasting and Scenario Planning
Cash flow is the lifeblood of any business, and forecasting is even more critical when you anticipate disruptions. Regularly update your forecasts to account for potential weather-related losses, such as closing down for several days or dealing with supply chain interruptions. Scenario planning - stress testing your financial models against potential adverse weather conditions will help you gauge the impact of different scenarios on your cash flow and adjust strategies accordingly.
5. Diversify Revenue Streams
If your business is highly seasonal or susceptible to weather disruptions, diversifying your revenue streams can help smooth out cash flow. This might involve offering new services or products during quieter times of the year or expanding into more weather-resilient markets. For instance, a bathroom installation company might experience delays due to bad weather, but by expanding into heating and plumbing services they can maintain revenue during off-peak periods.
6. Implement Cloud-Based Systems
Cloud-based systems are essential for continuity, especially in times of disruption. From accounting software to client management systems, moving to the cloud ensures that your business operations continue uninterrupted, even if your physical premises are affected. Cloud solutions also allow for seamless collaboration with accountants and advisors enabling faster, more informed decisions during crises.
7. Tax Deductions and Relief for Weather-Related Losses
In the aftermath of weather-related damage, businesses can often claim tax relief on repairs and renewals. Understanding the distinction between revenue expenses (which are immediately tax-deductible) and capital expenses (which are depreciated over time) is essential for maximising deductions. Always seek advice from your accountant before incurring costs to ensure you're making the most of available tax reliefs.
8. Utilise Government Grants and Support Programmes
In extreme weather cases, businesses may be eligible for government grants and support programmess, such as disaster relief funds. Keeping up-to-date with available schemes can provide much-needed financial relief during recovery. Accurate and up-to-date records, including expenses and losses, are critical to access this support quickly.
The financial risks posed by adverse weather events are becoming a fact of life for UK businesses. By implementing strategic financial planning and operational resilience measures businesses can better prepare for and respond to these challenges. Whether through insurance, cash flow management, or simply building an emergency fund, these actions can help businesses minimise disruptions, reduce financial losses, and continue to operate, even when the weather takes a turn for the worse.
By Steph Gemson, TaxGem