Five Ways for Small Businesses to Prepare for Disasters

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Imagine all the blood, sweat, tears and money that are shed to start a small business. Now imagine that a disaster strikes and all that hard work goes up in flames, washes away in a flood or crumbles to the ground.

Natural and man-made disasters will inevitably strike. The Federal Emergency Management Agency (FEMA) estimates that 40-60% of small businesses never reopen after a disaster. The good news is that these odds can be beaten. The following are five significant ways that owners of small businesses can prevent or minimize the effects of disasters.

1. Have an emergency response plan

The first step in creating an emergency response plan is identifying the major disaster risks to the business. For example, a business in California will be vulnerable to earthquakes due to its location. 

After identifying the risks, determine possible scenarios for which preparation is needed. An easy emergency response plan can be followed quickly and successfully. All members of the team need to know the plan as well as their roles during the disaster. These roles can include evacuating customers and employees, taking the roll call and providing first aid. Remember, it is normal for persons to panic during disasters. Therefore, it is advised that emergency drills be done frequently, approximately once a month, to prepare everyone and reduce panic.

2. Build a safe work area

Ensuring that the location of the business conforms to damage-resistance building codes plays a major role in preventing losses when a disaster strikes. During construction, fire-resistant building materials, as well as impact-resistant windows and doors can be used.

In addition to building a sturdy foundation, it is also important to keep a clean, safe environment. Exit paths need to be clear and wide enough to allow persons to quickly and safely evacuate. It is also necessary to review items that may fall and cause damage, such as heavy cabinets and tree branches that extend over roofs. Furthermore, every business should have a warning system and an assembly area. Building a safe environment also means that fire extinguishers and first aid kits are easily available. 

3. Invest in the right insurance

According to Marshall & Swift/ Boeckh (MSB), 75% of businesses in the United States do not have sufficient insurance coverage.  A business owner needs to consider the major risks to the business and speak with an insurance agent to decide on the best coverage.  

Business interruption insurance is always a good option as it covers the profits that a business would have earned if there were no disasters. Different types of catastrophe insurance cover certain kinds of natural or man-made disasters. Like all policies, catastrophe insurances have their limits. For example, while a policy may cover hurricanes, it most likely would not cover flooding, which is typically caused by hurricanes. Separate commercial flood insurance would, therefore, be necessary if this is determined to be a risk to the business.

Some business owners believe insurance to be expensive and confusing. However, asking the right questions and doing research can make the process clearer and easier.

4. Budget for a disastrous day

According to FEMA, 90% of small businesses fail within a year if they are not able to continue running within 5 days after a disaster.

Sometimes, insurance claims take a while to be processed. This is where an emergency savings account can become the life jacket that keeps a business afloat. The business owner can set a specific amount of money to be automatically deposited into a savings account each month. Building enough savings may take a while but patience is crucial. Ideally, the savings should be able to keep the business in operation when there is no revenue for approximately three to six months. 

5. Back up important data

Disasters, hard drive crashes, burglary, and cyber-attacks can all lead to the loss of critical information that cannot be recovered. This is the reason backups are advised to be done regularly.

First, identify the data that needs backing up. To do this, consider the types of information that would hinder the business’ operation if lost. These may include financial records, contracts, customer information, and employee details.

After deciding this, explore multiple, reliable ways of backing up information. Electronic data can be stored on media such as USB flash drives, external hard drives, and tape drives. These could be kept safely off-site. Important hard copies such as insurance and accounting documents can be stored in a safety deposit box that is also off-premises. Another option is to utilize cloud backup services. These types of services store copies of data that can be accessed or restored via an Internet connection. This could be business-saving if any damage is done to the physical copies.

References

Department of Homeland Security. Make Your Business Resilient. Washington DC, 2020.

Schmittlein, Marc. “How to Help Small Businesses Avoid Underinsurance and Anticipate the Unexpected.” Insurance Journal. April 16, 2012.

Ward, Susan. “How Successful Companies Backup Data.” The Balance Small Business. July 23, 2019.


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