Large-scale disasters such as Hurricane Katrina or the terrorist attacks on the World Trade Center can interrupt operations at hundreds of businesses. But even a sudden freeze that causes pipes to burst or a summer thunderstorm that cuts electrical power can bring a business to a halt.
According to the Institute for Business & Home Safety (IBHS), a nonprofit insurance-industry organization, at least one-quarter of all businesses that close because of a disaster never reopen. The toll is even worse for small businesses — federal experts say 40 percent of small businesses that close for a major disaster (such as 2005’s Hurricane Katrina) are closed for good.
There’s plenty of advice available on how to prepare your business for disaster, and adequate insurance and smart contingency planning go a long way to reducing the impact of unforeseen downtime. The IBHS Web site offers planning tips, including a self-evaluation and a kit of 13 forms you can use to prepare your own disaster-recovery plan.
Your chances for recovery are better the more preparation you’ve done in advance. But when a disaster strikes, you have to work with what you’ve got … and what you’ve got left.
Assess the physical damage to your business property, fixtures, equipment, and inventories. Are financial and other business records intact? Can missing information be replaced or regenerated? Your ability to recover begins with a clear understanding of what’s been lost or damaged and what can be repaired or replaced.
Planning tip: Make copies of important business documents and records, including licenses, payroll, tax, and accounting information. Keep current lists of employee, supplier, and customer contact information. Make frequent backups of the business’s computer files, too. Store the copies securely off-site. Some experts advise keeping them 50 miles away or farther.
Determine If You Can Operate from Another Location
Many small businesses begin in the owner’s garage, and in an emergency some can go back there. If your inventories are undamaged, you may be able to continue filling and shipping orders. Similar businesses may be willing to let you make use of their facilities on an emergency basis. There are also disaster-recovery companies that can provide trailers equipped with phones, computers, and other support to keep your business running.
Planning tip: Investigate options for running the business from an alternate location before disaster strikes. How easy would it be to move your operation? What equipment would you need? Where could it be rented? Are there similar businesses in your area that might be interested in a mutual-aid agreement for emergencies?
File Insurance Claims
Contact your insurance agent early in the recovery process. You’ll need to know how much of your loss is covered and what compensation to expect. You’re probably also going to need cash in hand to restart operations, and the sooner you’ve filed a claim, the sooner you’ll have it.
Planning tip: Go over your disaster coverage with your insurance agent to make sure you have what you need and understand what you have — coverage, deductibles, and limits. Most insurance policies do not cover earthquakes or floods; you may need special insurance for them.
You’ll need to inform them the business is closed and how long it is likely to remain closed — and you’ll need to know if and when they may be able to come back to work. A widespread disaster can leave employees homeless, injured, or with pressing family concerns. You may need their help in assessing the damage, contacting suppliers and customers, and for cleanup and repairs. If you decide to reopen in a temporary location, you’ll want them back at their jobs in the new space. So you’ll need to set up lines of communication and keep in touch with your workers throughout the recovery process.
Planning tip: Establish ways for employees to reach the company in an emergency, too — a central number with a recorded message, or designated key contacts within the company.
If you’ll be out of commission for any length of time, you’ll want to postpone the arrival of supplies. Paying for perishables you can’t use or store can vastly increase the cost of a disaster. But even if your premises are unscathed, there’s the risk in a widespread event that your suppliers, or their shipping routes, will be affected, so you’ll also want to contact them as soon as possible after a disaster if you’re not shutting down.
Planning tip: Keep a list of alternate suppliers for your key materials. You may want to establish accounts with them and make occasional purchases so you can assess the quality of their goods and services. You may wish to purchase income interruption insurance that covers business interruption resulting from supplier shutdowns.
The great risk with business interruption is that customers will go elsewhere and fail to return. Let them know you will be back. If there are outstanding orders, tell them when they can expect to receive their goods, or offer a refund. If you depend on walk-in traffic, post signs at your location saying when you expect to reopen. If you can, update the signs regularly so customers can see signs of progress. Send customers a mailing explaining why the business is closed and when you plan to reopen. When it’s time to reopen, send announcements, perhaps including a coupon.
Planning tip: Develop a customer mailing list, even if yours is a retail business. Send regular mailings — a postcard will keep your business in customers’ minds. If a disaster strikes, ongoing mailings add credence to the idea that you remain committed to the business and that it will reopen.
Investigate Other Sources of Aid
The U.S. Small Business Administration provides loans to businesses in declared disaster zones both for physical damage to businesses and economic injury. Local programs and industry groups may also provide assistance, depending on the nature of the disaster.
Planning tip: Of course, the time to investigate these and other programs is before a disaster strikes! As a first step, visit the SBA and IBHS disaster recovery Web sites.
Be sure to read Applying for an SBA Loan Following a Disaster for detailed information on how to begin this process.