It's not just tornadoes and hurricanes. Even everyday disasters—a failed server, burst pipes, a fire—can cripple a small business. Use these advance-planning steps so you'll be able to jump into action when you need to—and keep your business thriving.
When Jayne DiPierro relocated her Staten Island, NY, store On Your Toes Dancewear, her reason wasn't to avoid damage from hurricanes—she was expanding into a bigger space. But as it happens, when Hurricane Sandy blew in, the new store was in a safer neighborhood and suffered no flooding. Even so, like many local businesses, DiPierro's business was closed for five days because of power outages.
"Small businesses are particularly vulnerable in the aftermath of a disaster," says Carol Chastang, spokeswoman for the Small Business Administration's Office of Disaster Assistance. "Many don't come back." A disaster-preparedness plan can help, but three out of four small businesses don't have one, according to a Symantec study. This is a short-sighted and costly mistake because the more quickly you get your business up and running again, the less revenue and the fewer customers you'll lose.
Here's what disaster and insurance experts have to say about protective steps your small business should take now—before disaster strikes—so that you can jump into action should you ever need to.
1. Think about how your business might be vulnerable.
It's human nature to become complacent as memories of tornadoes or hurricanes fade, but what is the likelihood of a natural disaster in your region? There are many resources available to help you figure that out. AT&T; has a fact sheet listing the states most affected by different types of natural disasters. Or to identify common hazards in your region, you can plug in your zip code at the Institute of Business and Home Safety website. (The site also has tools and information on protecting your property against them.) Flood risks change from year to year and FEMA's floodzone maps are always being updated. Go to floodsmart.gov or ask your insurance agent about the neighborhood where your business is located. Brainstorm about day-to-day hazards, too: the sprinkler system of the upstairs tenant that could flood your store, for instance.
2. Review your insurance with your agent.
"One of the biggest mistakes business owners make is that they don't buy the right type of insurance and often have gaps in their coverage," says Loretta Worters, vice president of the Insurance Information Institute. Ask: Do I have enough insurance to rebuild my store or studio and replace all of my merchandise and possessions? What perils am I covered for? For instance, flood insurance is not included in standard business policies. It is available from the federal National Flood Insurance Program and a few private insurance companies, and covers up to $500,000 on property and $500,000 on contents. It takes effect only after a 30-day waiting period.
Don't forget business interruption insurance, and be sure you understand exactly what it covers. For instance, are you still covered for loss of income caused by a peril that you're covered for, even if that peril doesn't damage your particular space? You should also ask if you're covered for expenses, above and beyond normal operating costs, to keep your business open, such as renting a generator, or loss of income due to damage to the property of your suppliers or customers. "Make sure the business interruption policy limits are sufficient to cover your company for more than a few days," says Worters. "After a major disaster, it can take more time than people anticipate to get a business back on track." Power outages are the most common disaster. Would you be covered if a flooded power station caused an outage and kept you from opening your business, even though your business hadn't been flooded? These are just a few examples: the key is to go over in detail various scenarios with your insurance agent.
3. Back up your computers regularly and keep a copy of critical financial and other business records in another location.
Follow the 3, 2, 1 rule: Make three copies, on two different media (for example, DVD, hard-drive or remote server) and keep one copy off-site. (With recent disasters being more widespread, you may want to have a backup disk some distance away. It can be as simple as sending it to a trusted relative in another state.) Subscription services like Carbonite automatically back up your files in the cloud. Programs like Mac Time Machine will back up your entire system, including apps. Insurance policies and deeds tend to still be paper documents. Keep them in a separate location, and scan them to a backup disk.
4. Develop a business continuity plan.
Think about the critical and time-sensitive business functions you need for the day-to-day running of your store, and what kind of contingency plans you could put in place to maintain them. You might decide, for instance, that it makes sense to establish a small e-commerce website, from which you could sell basics to keep some revenue flowing in (and customers satisfied) should the physical store be closed. You'd need inventory, of course, so storing some products at another location could be considered. Where could you do business? Perhaps you could make an arrangement with a dance studio to temporarily use a small space to deliver product to customers, in return for a discount to that studio's students. Having to close for even a week can hurt a business badly so it's important to think about these issues.
Appoint one person on your staff as communication point person. Have them establish and keep current a contact list of critical people to your business: financial advisors, vendors, suppliers, customers; set up a phone tree for employees; set up and use Twitter and other social media for crisis communications. Communicating clearly and accurately is critical during a disaster. If your store or studio is boarded up while you reconstruct, it's important to let customers know that you're on course to reopen on a specific date, and to quickly correct rumors that you've closed down for good.
5. Make yourself a disaster-help resources list—before you need it.
If you wanted a generator for a week or two, do you know where would you could get it? Does it make sense to open an account with the company now? What secure storage facilities could you use to temporarily shelter some of your inventory? How about temporary space for a pop-up shop? Government disaster assistance for businesses comes in the form of loans, not grants. For instance, the Small Business Administration disaster office offers physical disaster loans up to $2 million to cover repair or replacement of uninsured or under-insured property, equipment, inventory and fixtures, and economic injury loans to meet operating expenses like rent that the business would have normally have been able to cover. You can apply online or call 800-659-2955. Local and state governments also have programs. Identify those relevant to your store and location, and record details of what they offer, contact information, how to apply (online? 800 number) and what documents you'll need to have on hand.
6. Start your disaster preparedness today.
"We're all really busy," says Chastang, "but in the stress of a disaster, it helps to have a recovery action checklist in hand and to have spent a little time once a month rehearsing how you would exercise your disaster contingency plan. It's in your blood, then, and you just go into action."