In recent months, the U.S. and the Caribbean have been badly damaged by Hurricanes Harvey, Irma, and Maria. In addition, northwestern states like Washington and Montana have experienced massive forest fires, and the Los Angeles area has seen minor earthquakes. All of these incidents are good reminders to small business owners that you need to have a disaster plan in place for your business.
Many business owners think that disaster planning is limited to data backups or strategic Business Continuity Planning, but, the truth is, another major part of being ready for a disaster is to make sure your business has a strong financial safety net in place. With the right insurance, lines of credit, access to cash, and other resources, you can rest assured that your business is in a good position to recover after a disaster.
Here's what you need to know to make sure you can recover financially from a disaster that strikes your business.
Recognize the Impact on Your Bottom Line
Business leaders are starting to think of disaster recovery not as a “technical" question for the IT department or as a “compliance" issue to stay aligned with regulations, but as something more fundamental to their company's financial well-being.
“More businesses and executives are starting to realize the implications on a company's bottom line of not having a disaster plan in place," says Edward Colson, emergency management expert and owner of Ready Northwest. “There are many negative financial outcomes that can affect your business from a disaster, ranging from lost revenue, loss of employees, loss or disruption of supply chain, loss of social capital or goodwill, and loss of shareholder confidence."
Think “Big Picture" First
Before you start addressing specific financial issues related to disaster planning, it's important to take a step back and think about some big picture questions that need to be on your company's radar before disaster strikes. Your financial planning needs to support the business's overall resilience and continuity of operations, such as providing special financial support to insure critical business operations or to bring back a skeleton crew of key employees.
Preparedness costs money and time. To be prepared for disruptions and disasters, you will need to do many things that will not ever make you a profit, but doing nothing may cost you far more in the end," says John Clouse, a preparedness planner and consultant. “You need to ask yourself, can you afford enough insurance to start over from scratch? Also, do you have a financial plan in place to help your staff recover so they will come back to work?"
According to Clouse, preparations might involve helping train employees on how to create a family disaster evacuation plan, or on providing them with guidance on how they should prepare to return to a damaged area in the event of a disaster.
"This might also include setting up a special fund for bringing key employees back and safely housing them so they can get you started on the road to recovery," says Clouse.
Be Ready for Cleanup and Aftermath
Disaster planning is not a purely theoretical exercise — the time might come when you need to deal with the practical aspects of disaster recovery, like boarding up office windows, cleaning up flood or fire damage, filing insurance claims, and more.
Carl Gross is the Vice President and CAO of Globe Midwest Adjusters International, a public adjuster firm that helps business owners and other policyholders recover from property insurance claims. Gross says that business owners need to follow a few key guidelines for preparing for a possible disaster-related insurance claim, and dealing with the aftermath:
- If possible, prepare your property for damage before the disaster. “It's your responsibility to perform emergency work such as putting up tarps, removing wet drywall and carpeting to prevent mold, boarding up openings, and installing fencing where necessary, to protect your belongings, and keep others from getting hurt," Gross says.
- Document any damage. In the event of a disaster, business owners should photograph or videotape the disaster scene, including the “debris pile," before beginning any cleanup efforts. “When estimating damages, do not rely solely on your historical records — instead, secure replacement cost estimates," Gross says. This will help you understand and convey the exact scope of damage and help get valid estimates from your insurance company.
- Read the fine print on your insurance policy. “Read and make sure you understand your rights and obligations under your insurance policy before entering into any serious discussions or negotiations with your carrier," Gross says. “Seek out a professional to help you understand what your policy actually covers and, just as important, what it excludes."
- Document your cleanup and recovery activities and expenses. “Keep a log of all activities and save all receipts, including those for property replacement and extra expenses," Gross says. “This will provide the documentation a disaster recovery professional requires to present expenses to your carrier, and you will know which expenses will be reimbursed as you rebuild."
Be Strategic About What Comes Next
Recovering from a disaster can be stressful and financially damaging, but it can also be an opportunity to ask some hard questions about the future of your business. Do you want to discontinue a certain product or opt not to rebuild at a certain disaster-stricken location?
A disaster can give you the impetus to make strategic decisions that will give your business a brighter future. “Policyholders often expect the insurance company to tell them what to do to save their business, but insurance company adjusters are simply auditors of your property insurance claim," Gross says. “Only you know your business and what's best for your recovery."
This is another reason why it's so important to integrate your financial planning with your overall Business Continuity Planning. Ultimately, you want to make sure that your business is adequately insured, that your employees and critical functions are protected, and that your business can recover as quickly as possible from a setback — and keep in mind that money is only one part of that equation. You also need to have a solid strategic focus and a detailed plan in place for the overall resilience of your business operations, both before and after a disaster strikes.