When you're setting up a business, coping with a flood, fire, hurricane or break-in is one of the last things you want to think about. After all, the probability is small, right? And if you operate, say, a consultancy, how much damage could a big storm cause? Like it or not, one of the steps to starting a business is considering what you would do in the event of a disaster.
The Federal Emergency Management Agency, FEMA, calculates that roughly 40% of all small businesses do not reopen after they experience a flood. And 25% of businesses affected by a disaster shut down within a year. In addition to the effects of the disaster itself on your business, you have to consider the potential impact if neighboring businesses go under and affect your commercial "microclimate," by reducing foot traffic, for example.
Recent Weather Events Remind Businesses of Risks
Homes and businesses in Florida, Georgia, and the Carolinas took a beating from October's Hurricane Matthew. It was only around for a few days, but the effects may last a long time. Insured property loss from the hurricane is currently estimated at around $5 billion, with businesses accounting for about 25% of that.
Hurricane Sandy, which hit in 2012, was described as a "once in 700 years" storm by weather experts. It left behind massive destruction including damage to the power grid, with thousands of small businesses in New Jersey and New York sustaining damage. Despite billions in federal aid, many of these businesses are still struggling years later.
Develop a Disaster Recovery Plan
Your business' disaster recovery plan, of course, depends on the risks you face and the assets you need to protect. Maybe you're lucky in that you're a one-person outfit that can operate from anywhere there's broadband. In that case, excellent computer backup practices may make up the backbone of your disaster recovery plan. Then again, if you live in a flood zone, or where wildfire risk is high, you have to look at historical data to estimate your true risk and know what, precisely would be most at risk, whether that's your building, your data, or assets like transportation or other equipment.
Disaster recovery programs should be communicated to all key employees, and of course, all employees must know specific disaster actions to take, like where they should evacuate should that become necessary. Your IT managers should develop a failsafe plan for your IT infrastructure to get operations back online as soon as possible. If much of your software and storage is in the cloud, your assets are less vulnerable, but a disaster recovery plan is no less necessary.
Insurance Needs for Small Businesses
In addition to your business liability and property insurance, you might consider the advantages of business interruption insurance, which would cover you in the event of unavoidable interruption of daily operations. Contingent business interruption coverage offers protection if your business loses revenue because of damage to a major supplier or a customer base. You can even get insurance to cover you should you have to evacuate by order of a civil authority - something that can affect millions in the event of a hurricane.
It's also essential that you understand what your property and liability insurance policies cover in terms of damage caused by floods, storm surge, and storms big enough to be named. Conflict over these insurance terms created some thorny issues for business owners after Hurricanes Sandy and Katrina.
You should be as prepared as you can, and have sufficient insurance coverage, but you also have to prepare to put a different set of skills to work and pull your entire team together in the aftermath of a major event. The fact that you have what it takes to run a small business in the first place indicates that you have what it takes to thrive after a disaster, so keep believing in yourself.