Spring 2014

Disaster Preparedness 101 By Phillip M. Perry

Hurricanes. Floods. Fire. You don’t want them to happen but they do. Is your gift shop prepared?

An industrial plant explodes in Texas. A tornado ravages Oklahoma. A hurricane floods the east coast with water. Bombs shut down the city of Boston.

All those recent disasters caused tremendous human suffering. All of them, too, brought devastation to businesses large and small. From damaged buildings to wrecked inventory to disrupted supply lines, natural and
man-made disasters can tear a huge hole through profitability. In many cases businesses close their doors for good.

Plan for recovery

What lessons can gift shop retailers learn from all this? Here’s one: Create and implement disaster recovery plans designed to mitigate harm when bad things happen. No matter how successful your operations, everything you do can come to a halt if there’s no Plan B when Plan A gets derailed. “A bad event can take down a company forever,” says Jeffrey Williams, president of Binomial International, a disaster planning consultancy in Ogdensburg, NY. “That’s why it’s so dangerous for businesses to keep disaster planning on the back burner.”

In approaching a redesign of your own plan, experts counsel taking a broad view, incorporating as many “what-ifs” as possible. “There are three types of disasters,” says Williams. “The first is natural. Think weather. The second is technical, when equipment fails. The third is a human error, what people do to other people. That can be sabotage or a fire.” Advice from Williams: plan for all three.

Offsite data

Suppose you were forced out of your building right now. Maybe you are the victim of a fire, flood or wind storm. How would you continue your business? The likeliest answer would be “with great difficulty,” unless you have taken measures to ensure the maintenance of a certain level of customer service and sales.

“Businesses can take a number of steps to assist in getting through a crisis before the next disaster strikes,” says Chris Hackett, director of policy development in the research division of Property Casualty Insurers Association of America. Perhaps one of the most important, he says, is the determination of a temporary relocation site.

That temporary site might be a basement in your home, or a rented room in another city. Whatever the location, it must be one where you can access your critical files. That includes your accounts receivable so you know who owes you money. It also includes your customer lists to protect your future revenues. Keep a computer at this location with continually updated company data.

Make sure you have a fallback Internet network into which you can plug your devices. And have a call forwarding plan prepared that will route incoming calls.

Finally, put together an offsite list of emergency responders. These are people you’ll need to call to help solve the problems the disaster has caused. The remote location is one thing: Having people who take the right actions is another. Identify the steps you’ll need to take when disaster strikes, then assign them to key personnel. “Things will go much smoother if everyone knows what they ought to do in a crisis,” says Williams.

Property insurance

Do you have sufficient property insurance in place? What may be good one year may no longer be adequate several years later. So revisit your policies with a trusted advisor. “It’s always good to have regular sessions with your agent every year or so to review what you have,” says Hackett.

The number one insurance category is, of course, property insurance that covers fire. “As it relates to fire, policies should insure your structure for 100 percent of its replacement costs,” says Hackett. Replacement cost is the amount necessary to rebuild your structure using construction materials of like kind and quality. If you are thinking of adding an addition, or making renovations, that will substantially increase the amount necessary to repair or replace your property you should inform your agent. If you have not done so the settlement under the policy will be based on the replacement cost information the carrier had on file at the time of the loss.

Consider, too your deductibles. “There are pros and cons to having higher and lower deductibles,” points out Hackett. “Lower deductibles mean less money out of your own pocket after a covered loss but cost more in premiums. Higher deductibles mean lower premiums but more
out-of-pocket costs when disaster strikes. You have to decide for yourself what you prefer. Ask yourself, if a loss happens tomorrow would I be able to come up with the deductible or not?”

Insurance is great, but be prepared to prove your losses. “It’s important to take inventory of the items in your business,” says Hackett. “Walk through your building with a camcorder and make a video. That will help expedite the settlement of your covered loss with the claims adjustor.” Store the video offsite in a safe or bank safe-deposit box.

Revenue stream

A disaster can interrupt sales, and that means your expected revenue stream can dry up quickly. Think about buying protection. “Business interruption insurance provides critical coverage for lost income—what your business would have earned but for the physical damage of a disaster,” says Hackett.

Purchasing interruption insurance requires thorough consultation with your agent. “It’s not as simple as an auto policy,” says Hackett. “The carrier will ask you questions about the nature of your business, your employees, your typical income in a month, and whether your business is seasonal in nature.”

You might also consider “extra expenses coverage,” notes Hackett. “This insurance covers the higher expenses you might incur by moving to a new location, such as higher rents, and the costs of relocation.” You can also get coverage for payroll expenses. “Just because your business is shut down, that doesn’t mean people will not expect a paycheck,” says Hackett. “Paying them can be difficult if you are not taking in any income.” You can purchase such insurance just for the highest paid employees or for your entire staff.

Two more things. “Contingent business interruption insurance” covers the lost income that results when a supplier is unable to deliver. You can also purchase what’s called “extra contingency expenses insurance.” That covers the higher prices you might end up paying to an alternative supplier.

Water damage

Standard property insurance policies generally cover water damage that results from pipes bursting. Not covered, however, is flooding from causes such as tidal surges, the overflow of rivers, or water flowing down from a mountain or along the ground. “Damage from flooding can be catastrophic,” says Michael Sapourn, a Satellite Beach, FL,-based attorney who has dealt extensively with flood damage insurance and litigation. “Those who own buildings located in areas vulnerable to such events should purchase flood insurance.”

“Much litigation results from the difficulty in distinguishing between water damage caused by windstorm (which is covered by standard property insurance policies) or from other causes such a tidal surge. Carriers often litigate the gray areas where windstorm ends and tidal surge begins. Mortgage lenders will require you to buy flood insurance if you are located in a flood zone, as defined by FEMA. “Businesses which have paid off their mortgage often drop flood insurance since they no longer have a lender who requires it,” says Sapourn. “That’s a mistake.”

Once you have your recovery plan and your insurance policies in place, you are in a much better position to survive should you be hit with a disaster. But don’t just toss your recovery plan in a desk file and forget about it.

“Disaster recovery planning is an evergreen issue that is never done,” says Williams. “People change jobs, functions change, mobile phone numbers change. Keep revisiting your plan.” You don’t want to be caught without a lifeline when a crisis hits.

Disaster Quiz: How Do You Score?

Score 10 points for each “yes” answer to these 10 questions. Then total your points. If you score between 80 and 100 you are in a safe zone. Results between 60 and 80 mean you need to dust off the emergency plan. Score less than 60? Take immediate steps to get your disaster plan up to speed.

Have You:

• Backed up your data regularly to an off-site location?
• Identified a remote site for relocated quarters?
• Arranged for an alternative Internet network?
• Assigned key employees specific tasks in event of emergency?
• Drawn up co-worker and client call lists and assigned to employees?
• Detailed your list of emergency responders?
• Selected vendors for emergency repairs?
• Obtained property insurance for 100 percent of replacement cost?
• Maintained regular inventory; taken photos as appropriate?
• Obtained business interruption, flood, and earthquake insurance if appropriate?

Phillip M. Perry

Phillip M. Perry is a New York City-based freelance business writer with over 20 years of experience in the fields of workplace psychology, employment law and marketing. His byline has appeared over 3,000 times in a great variety of business publications.