Weatherproofing Your Business

DESPITE BACK-TO-BACK BLIZZARDS this past February, Erin Wallace, the owner of the Devil’s Den and Old Eagle Tavern, bars in and around Philadelphia, dug out both locations and opened up shop. Deliveries were another matter. “I was getting phone calls from distributors; everyone was off,” says Wallace, who had to add a second delivery day on Saturday, but managed eventually to receive her orders.

Dealing with the vagaries of weather is a perennial headache for businesses, of course, but this winter was particularly harsh. Not only did some businesses lose sales resulting from reduced foot-traffic, others watched their supply chains slow or shut off, their pipes burst or roofs collapse.

As political debate over the impact of global warming continues, some climatologists and climate-minded economists are analyzing what the long-term impact on businesses could be. “It’s well known that higher temperatures can trigger changes in rainfall and snowfall,” says Fran Sussman, a senior economist who focuses on the economics of climate change at consultancy ICF International. This doesn’t necessarily mean that more or less rain and snow will fall in the future, she says. Rather, higher temperatures are consistent with more variability in the climate. In turn, changes in the climate could also lead to increased severity of extreme events like hurricanes and earthquakes, Sussman says.

While not every small business needs to be concerned about the effects climate change, it can’t hurt to have a backup plan. Here’s how to prepare your business for a really rainy day:

Identify risk factors

Find out what your company needs to be in business. For some it’s a physical location and inventory to fill it, for others a company’s staff is vital for operations. Still another company may rely on a hearty supply of mangos, bananas and strawberries as well as operable blenders. After identifying which elements are necessary to the daily operation of your business, think about what events or other outside influences could jolt your company’s normal operations, says Craig Fugate, the administrator of the Federal Emergency Management Agency (FEMA). Would flood conditions put your business on pause? How about sky-high energy prices? Might a surge in gas prices slow down shipments? Think also about necessary supply chains, says Fugate. “Even if I don’t control them,” he says. “If my supply chain fails, I can’t do my job.”

Devise a backup strategy

Then devise a backup plan. If you’re expecting future shocks arising from inclement weather or other disasters -- natural or not -- consider locking in longer-term contracts and agreements now, says Sussman. If your business needs a consistent supply of energy to stay open -- and you work in an area that’s susceptible to storms -- secure a backup generator. Will you lose your security system when the power goes out? Also, set up a plan in which employees can work from home should transit become difficult. “Basically, think about climate change the same way you would think about what affects profits and your supply of products,” she says. “This is just one more factor to consider.”

Get insured

Depending on which risk factors you’ve identified, insuring your business may be a good idea. Small-business owners typically opt for business-interruption insurance known as a business owner’s policy, or BOP, says Loretta L. Worters, the vice president of the Insurance Information Institute. This type of insurance combines coverage for all major property and liability insurance risks as well the loss of profits after a disaster. Operation expenses and temporary work-space costs are also included in the policy.

It’s also worth noting that only damages arising from certain disasters are covered by an owner’s BOP. Those with operations in hurricane- or earthquake-prone areas should consider purchasing additional coverage, says Worters. In many parts of the country, you can buy these policies directly from insurance companies, she says.

Weigh costs with benefits

A standard BOP’s premiums will depend on various factors including the size of the premises, the required limits of liability, the type of business and the extent of offsite activity, among other things, says Worters. The cost of other policies will be extra, she says. To know for sure whether the cost of insurance is worth it, consider the alternative, suggests Fugate. Find out how much it will cost to buy down your risk, and weigh that against how much it would cost to close up shop for a week or two. “Are you going to take reasonable steps to help your business or are you going to run your business into the ground?” he asks. At this point, decide if it worthwhile to keep the business running through a disaster.

Mitigate your risks

Although the concept of climate change is controversial, business people can’t afford to ignore any possible outcomes. Even though small companies have less say in the discussion surrounding environmental policy and regulatory reforms, they should consider joining a trade association to strengthen their voice on various issues that affect their companies, says Andrew J. Hoffman, a professor of sustainable enterprise at the University of Michigan. It’s also a good idea to pay attention to what bigger companies are doing. “Small companies can’t afford to do experiments and make mistakes. Instead, learn from what the bigger companies are doing,” he says. “It is helpful for companies to be in tune with what is going on where it is going.”

—Write to Diana Ransom at dransom@smartmoney.com

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