Disaster - Prepare your business

by Mike Rudd

Any business can be struck by disasters such as earthquakes, vandalism, floods, tornadoes or fire anytime.

A 2005 International Profit Associates Small Business Research Board (IPA SBRB) Study reported that 79 percent of small businesses do not have a disaster recovery plan in place. According to the U.S. Department of Labor Statistics, more than 40 percent of all companies that experience a disaster never reopen and more than 25 percent of the remaining companies close within two years.

Many small businesses operate on thin margins and any major disruption in cash flow can be fatal. Businesses that do reopen are often crippled by staff turnover, increased debt or an economic downturn. Large businesses have the resources to support backup computers, extra offices and elaborate disaster recovery plans and are more likely to survive when disaster strikes. There is little that can be done to avoid natural disasters, but being prepared can make the impact more bearable.

Yet small businesses are important to economic recovery after disasters. In the same IPA SBRB Survey, more than 70 percent of owners and managers questioned said that small businesses are the key to recovery after disasters. They create two-thirds of new private sector jobs in America, employ more than half of all workers, and account for more than half of the output of our economy. Small businesses stimulate employment and diversification of the economy. Small business is where innovation takes place. Small firms produce the items that line the shelves in stores and keep intact the heritage of ingenuity and enterprise.

Unfortunately, most small businesses are not prepared to recover from such disasters.

When looking at developing a disaster recovery plan, the following elements should be considered:

• Recognize the importance of redundancy and backing up vital data. Losing vital information such as accounts payable, accounts receivable or inventory management can be a devastating blow. The easiest and safest way to prepare for catastrophe is to back up the data stored on computer systems. What small businesses may find surprising is that backing up data doesn’t have to be expensive, but what can often be difficult is making the commitment to take action. Data backups include: ownership documents, account numbers, banking and financial information, insurance policies, product lists, employee databases, customer databases, supplier databases and personnel files. Back up copies should be stored off premises.
• Safeguard equipment. Protecting your equipment will save time and aggravation in the event of a disaster. Store equipment off site or elevate it above flood level. Move it away from windows and doors and protect it with appropriate covering.
• Familiarize yourself with disaster resources. For example, the IRS allows business owners to amend their previous year’s taxes to claim disaster-related casualty losses if the president declares a disaster. The Small Business Administration may be able to provide low-interest loans, and your state or local Economic Development Agency may be able to help. Identify these organizations ahead of time.
• Review your insurance. Premiums and deductibles increase for businesses in the wake of natural disasters, so you’ll need to review your property/casualty insurance carefully with your insurance agent or financial adviser, and review it annually thereafter. Be sure the coverage reflects recent building improvements or additional property. Make a video recording of belongings for claims. 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.
• Develop a specific disaster plan. Map out precisely who will do what if disaster occurs. Who will be in charge of evacuation or making certain that important documents and data are safely secured? Designate a meeting spot outside of your business. Share the plan with your employees and keep it up to date.
• Keep a business savings account. The key to a successful disaster recovery is money. You won’t be able to wait weeks or months for insurance adjusters and settlement checks, so prepare by saving.
• Maintain strong communication. An important part of disaster recovery is to make sure that correct information is communicated to employees, customers, media and the general public. Someone must be assigned the responsibility of deciding when it is appropriate to make public statements and for creating appropriate answers to the questions that will be asked by each of these groups.

Disaster can strike at any time. It does not have to be a catastrophic event such as Hurricanes Katrina or Rita. It can be as simple as a broken waterline that destroys company records, a fire, the loss of a key employee or any other significant disruption to a company’s operations. The key to recovery is planning. Communicate the plan to employees so they know what is expected of them during a time of crisis. Most of all, be prepared.