Bp Gulf Oil Spill: The Impact On Coastal Businesses
By: Kristen Abraham
Vice President
Many small and large businesses have already begun to feel the impact of the BP Deepwater Horizon Oil Spill in the coastal Gulf State regions. Businesses that have suffered a loss due to the rupture and release of oil in the Gulf of Mexico may have a claim to present to British Petroleum as well as insurance companies and emergency loan organizations. The impact that this disaster will have on local and global economies and how long it will last is not yet understood. However, one thing that is for sure is the financial consequences for the communities affected will be substantial. A certified evaluation of a company's loss due to this disaster could help in placing a numerical value and recovery of this loss in income.
Many businesses have already been affected either directly or indirectly. The impact of this disaster is showing declining activity in the following industries: commercial fishing, recreational/tourism, oyster and seafood processing, BP pipe and fittings suppliers, and numerous others. Sean Snaith, an economist at the University of Central Florida, recently completed a study showing that Florida's gulf coast could lose 195,000 jobs and $11 billion this year alone if the spill cuts tourism in half.
The value of a company is usually dependent upon its past, present and future earnings or its ability to generate income. A knowledgeable and prospective buyer of a business will estimate (as best he or she can) what earnings will be generated in the future. The buyer "buys" the business based on both the value of the hard assets (accounts receivable, equipment, and inventory) "plus" the goodwill it has generated. Goodwill is generally defined as the salable value of a business arising as a result of name, reputation, customer loyalty, location, products, and similar factors.
In order to substantiate a claim for loss of value, it is recommended that you engage the services of a well-qualified business appraiser. A competent appraiser will interview the business owner, research the nature and history of the business, and examine why the company was a viable and profitable operation in the past. In particular, the appraiser will investigate the negative repercussions the BP oil spill had on the business in question. This valuation process is used to prepare what is known as "before" and "after" analyses.
The "before" analysis determines the fair market value of the business before the damages occurred. It is a reasonable estimation of the relative value of the business "before" the oil spill. The "after" analysis determines what the business is worth after the disaster has diminished its value. The difference in value between before the spill and after the spill is the loss in goodwill value that the business has sustained and may be claimed as a loss to BP and the independent arbitrator agreed upon by the government. Many of these companies are going to experience a loss of income for possibly the next couple of years and this should be calculated and well documented by an independent third party.
According to Charles Colgan of the National Ocean Economics Program, about $1 billion of the United States' GDP is attributed to fishing in the Gulf area along with $13 billion in tourism and $11 billion in oil. This region accounts for about a fifth of the nation's oyster production and 75 percent of the domestic shrimp output. Tourism is the main factor, though. This is especially true for Florida, where the state relies completely on revenue from tourists and has no state income tax. This loss of tourism could devastate Florida, and the entire Gulf region.
Many businesses in the Gulf Coast Region will inevitably experience a loss of salable goodwill due to damages and loss of income. This loss, in addition to losses of hard assets and physical property, could drastically affect the values of these once thriving companies. It will be crucial for companies affected by this national disaster to have a good idea of the income lost during and after the oil spill. A certified appraisal by a well-qualified business appraiser can help reduce the guess work and liability of making a claim with BP.
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