For some small businesses, being prepared for the worst can make the difference between staying afloat after a disaster or closing shop permanently.
According to Dennis Charland, executive director of the Independent Insurance Agents of Rhode Island, more than 85 percent of businesses that have their normal operation interrupted and don’t carry business interruption insurance end up failing within five years of such an incident.
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“The facts speak for themselves,” Charland said.
To that end, Portsmouth native Donna Childs, CEO and founder of Childs Capital in Manhattan, co-wrote a book, “Contingency Planning and Disaster Recovery: A Small Business Guide.”
The book stems from Childs’ experience as a small-business owner who was displaced from Lower Manhattan following the Sept. 11 terrorist attacks.
“Most small businesses that I know didn’t make it through that experience,” Childs said. Her company carried business interruption insurance and the claim was paid within three days. “But more than half of Lower Manhattan small-business claims filed are unresolved, nearly three and a half years following the attacks.”
Childs estimates that less than 10 percent of businesses carry the insurance and people tend to think in terms of property when it comes to purchasing insurance.
In addition to carrying business interruption insurance, there are things that both employers and employees should prepare for in the event of a natural or other disaster, Childs said.
The Red Cross surveyed small-business owners and found that 64 percent had no disaster plan. They cited lack of time, money and knowledge as primary reasons for not organizing such policies.
Chief among preparation plans, naturally, are plans that protect employees like evacuation plans, Childs said. Once such a plan is established, businesses must then look at enacting redundant technology and redundant financial assets.
“All of our data is backed up online,” Childs said. The service costs $15 per month and the data is backed up on servers at three different locations. Childs recommends scanning documents critical to the operation of the business – such as insurance policies – and storing them online so if they’re damaged or destroyed, they’re still accessible.
Installing redundant hard drives onto office computers is another way to protect information and technology assets; and, of course backing up information on a regular basis.
“Better than 90 percent of small businesses have insufficient backups,” Childs said. “Unfortunately, until you experience it yourself, you discount the fact that it could happen to you.”
Drilling employees in emergency response and assigning specific responsibilities can go a long way in ensuring things run smoothly, Childs said.
“You want everyone to be on autopilot if there’s an emergency. Compile a simple checklist and then once a quarter, review it with everyone,” Childs said. Such lists can include everything from where the first aid kit and cash are located in the office to safe places to go in case of an emergency.
Policies should also be in place so employees know where they can log on in the event they can’t return to the office right away.
Business interruption policies can cover everything for loss of data, electricity, lost time at the business because of weather or other circumstances, Childs said.
“Let’s say you’re in the food-service business and you keep an inventory of food,” Childs said. “If you lose electricity there can be an endorsement in your policy to cover electricity loss.”
If access to a facility is blocked by a construction or other accident, that too can be covered.
“It’s a question of making necessary choices.”
If disaster does strike, another good way to be prepared is to have a detailed list of assets available to take to the insurance company. For example, if a fire burns an office and the computers are destroyed, it’s better to have a list of the machines, hardware and software specifications available instead of just the receipt for the products.
“It reduces the risk of a dispute with your insurance company so you can have a quick and timely payment to get back into business,” Childs said.
Keeping good records of expenses incurred while business has been interrupted is another way to reduce hassles and ensure payment from insurers. Expenses like overtime wages paid to employees who work to restore the business, lease payments for alternate officers and the cost of purchasing temporary business assets are all likely covered by a good business owner’s policy, Childs said.
“You can also get coverage that’s more customized to a specific event,” Charland said. “Most business interruption coverage deals with frozen pipes and fire and then what ends up happening is the business needs to have something supplement the loss of income.”
Business owners who don’t have the foresight to see how long it will take to rebuild if there’s a fire and the money they lose if there’s such an incident don’t recognize the impact it will have on the future of their business, Charland said.
“The customer will go somewhere else while you’re out of business and they might not come back,” Charland said. Some coverage can include maintaining a supply line of product to keep the customer satisfied while the affected business is out of commission.
It’s important not to overlook the impact a large-scale disaster has on a business’s work force, Childs said. She recommends getting help for employees and the employer if it’s needed because following a major disaster people are likely to experience a range of emotions, including shock, grief and mourning.
“You won’t be able to look after your employees and your family if you are run down,” Childs tells small-business owners. “Get the support you need.”
