What Do You Do When Disaster Strikes?

Make sure you and your business are ready for anything

Scott T. Newman, president and co-owner of Brite Visual Products, arrived at his Quincy (Mass.) office last January to see a large furniture truck wrapped around the utility pole outside. The building was

pitch dark. With no power, the 15 employees of his $4 million whiteboard distributor couldn't boot up their PCs or answer their phones. Luckily, just four weeks before, Newman had drawn up an emergency plan. "I've lived through too many New England winters to take any more chances," says Newman. "We'd just signed on with Amazon.com as a partner, and we couldn't afford any downtime." The plan went into action. Incoming calls were rerouted to employees' homes. From there, employees could go online to gain access to copies of customer records stored by NetSuite, an online provider of business applications 2,500 miles away in San Mateo, Calif.

As disasters go, Brite Visual's was certainly minor. Power came on the next day. But Newman was thrilled things went, well, according to plan. "To stay in business you have to have a plan in place," he says.

He's right, but most small business owners are woefully unprepared for emergencies, minor or catastrophic. As a result, 25% of small businesses that close because of fires, floods, or other disasters never reopen, according to the Institute for Business & Home Safety in Tampa, Fla. Karlyn Carnahan, vice-president of commercial business at Fireman's Fund Insurance in Novato, Calif., says 40% of all businesses hit by a disaster close within five years. Why? Roberta J. Witty, research vice-president of Gartner, a research firm in Stamford, Conn., says entrepreneurs' awareness of disaster planning is "pretty much nonexistent."

You can do better. To protect your business, create an emergency plan that includes phone lists, alternative working spaces and processes, and, most critically, a procedure to back up vital data. Finally, make sure you have the insurance coverage you'll need to make up for lost revenues or rebuild your business.

Emergency planning begins with determining your business' bottom-line needs. "There are critical business functions you must consider," says Diana McClure, assistant vice-president of the Institute for Business & Home Safety. "You might be able to continue payroll if you have an online service provider, but what about your debt obligations? Where are your records? Do you have a recovery location from which to operate?" Figure out how long each department can function if you're caught without power, your office gets flooded, or worse. How long can you go without making sales calls? How long will your inventory last if a key supplier goes belly-up or a transportation center closes?

Every plan, at a minimum, should include a list of emergency phone numbers and a guide to which employees should make calls and in what order. Several employees should keep an electronic copy of the list and a printed one at home.

The plan should also make clear where employees will work if the office can't be used. As Brite Visual did, most small businesses can get by for a few days with employees working from home or a local hotel conference room. But that only works if you've made arrangements well in advance to give employees remote access to their computers and to forward their calls. To help you get started, the Institute for Business & Home Safety offers a free plan that covers the basics, called Open For Business, at www.ibhs.org/business_protection. More sophisticated -- and expensive -- online tools enable managers to send messages to employees' cell phones, e-mail accounts, and personal digital assistants to set emergency plans in motion. RecoveryPlanner.com in Shelton, Conn., offers a service that runs $100 a month for each user, with a minimum of 10 users. OpsPlanner from Paradigm Solutions in Rockville, Md., charges a flat annual fee of $15,000.

Gartner's Witty suggests that small business owners check out companies that rent office space and meeting rooms by the hour. Regus Group, based in Chertsey, England, has 750 locations in 60 countries and charges $313 to $537 a day for a well-equipped meeting room. No advance notice is required, but you may find them full if a disaster affects an entire town. An office large enough for three workers runs $25 an hour at any of Lexington (Ky.)-based Office Suites PLUS's 20 locations. The drawback is that you'll need to supply your own computers, and the rooms may be already booked when you need them. Companies that can't afford to take any chances can reserve space in fully equipped relocation sites such as those run by Shelton (Conn.)-based Computer Alternative Processing Sites, or SunGard in Wayne, Pa.

Losing power may knock your business out for a few days, but losing valuable customer data or financial records can do more lasting damage. The most critical part of your plan is determining how to back up data and where to store it.

What data should you back up? Anything that affects your day-to-day operations. First and foremost, that means your accounting, payroll, and customer-contact records. You'll probably also want to back up your e-mail. E-mail providers such as Hotmail or EarthLink automatically back up several years' worth of e-mails if you pay for storage space.

There are three principal ways to store data. The most common option is to copy data to computer tapes and take them home each night. The $2,000 Hewlett-Packard StorageWorks, for example, stores up to 200 gigabytes of data.

Another choice is to have someone else do the backing up for you. You can send data via the Internet to storage companies such as EVault in Emeryville, Calif., and Burlington (Mass.)-based Intranets.com. Keep in mind that these companies store data only. You'll need to retain duplicate copies of your software applications, kept safely on computers that won't be affected by any emergency, to make use of the data.

The safest option is the most expensive. Companies such as NetSuite and Salesforce.com not only host applications and rent them out, but make real-time copies of your company's data while employees are working away. Subscribing to these services isn't cheap, but may be a good option for companies that don't have information technology staff. If disaster strikes, you'll not only be able to retrieve your data, you'll have the software applications needed to run your business. All you'll need is Internet access.

If you don't need all your business data in one place, or just need up-to-the minute backups of certain crucial data, you might skip the suite of applications and use online backup services à la carte. Accounting software such as ePeachtree from Best Software in Norcross, Ga., or Quicken from Intuit in Mountain View, Calif.; payroll applications including SurePayroll, based in Skokie, Ill.; and staff scheduling programs from Atlas Business Solutions in Fargo, N.D., can all back up your data as you work. Many entrepreneurs will find that combining a few such services will protect the business for much less than an integrated suite of applications would cost. SurePayroll, for example, charges $57 for a biweekly payroll for 20 workers.

Even the best plan isn't going to rebuild your office or rent a new location. For that, you'll need money -- that is, adequate insurance coverage. The Small Business Administration suggests that business owners have three types of coverage: property insurance to protect against losses from fire and theft, liability insurance to protect against lawsuits, and business-interruption insurance to cover revenue loss. A prepackaged business owner's policy generally includes all three, and is more affordable than purchasing coverage separately. But be warned: "Most small businesses that have business-interruption insurance won't have enough," says Daniel C. Free, president and general counsel of Insurance Audit & Inspection in Indianapolis. One reason, says Free, is that some insurers ignore or cap the business-interruption portion of the policy to reduce the payout if a company closes for an extended period. Extending the life of the policy will cost you.

When evaluating a policy, estimate the maximum downtime you're likely to experience if you have to rebuild. "You also need to consider your competitive position," says Free. "Your clients will go to your competition while you're out, so you need to think about whether you can reopen in your area."

Expect to pay about $5,000 a year for a small business policy, says Walter Moffitt, the small business product director for the Fireman's Fund. That'll get you $2 million in property and equipment coverage, $1 million in liability, and business interruption coverage without a cap. And it may be a small price to pay to keep a temporary crisis from becoming a true catastrophe.

By Kevin Ferguson