What If

What if hackers break into your computer system and delete vital customer and employee data?

What if an unexpected ice storm knocks out power to your office—and all the other offices 20 miles away—for a week?

What if, late at night, an electrical fire destroys the contents of your office?

What if an F5 tornado, with winds blowing more than 300 miles per hour, tears across your state, leaving your employees homeless?

What if the last two active hurricane seasons weren't anomalies, but the pattern for years to come? Could your business survive being hit by a wall of water and wind?

If your answer to these questions is, “I don't know,” you're not alone. Many small businesses lack plans to weather—and recover from—a disaster, whether it's natural or man-made, unique to their business or affecting an entire region.

The consequences of being unprepared can be dire. As many as 40 percent of small businesses never recover from a disaster, and many more spend months clawing their way back to profitability. Similar to the emotions many people experience while writing a will, planning for a disaster that could cripple your business can seem daunting—even a bit morbid. But the process doesn't have to be as difficult as some may think, and experts say strong disaster preparedness can even improve small businesses' day-to-day operations.

Researchers at the National Federation of Independent Business (NFIB) discovered in the summer of 2004 that many small businesses were unprepared for the spate of hurricanes that hit Florida. That prompted the organization to create a survey specific to the issue of disaster preparedness. The results showed that small businesses anywhere in the country were vulnerable to disasters, and that those events—both natural and man-made, such as computer viruses—“are a lot more common than we thought,” says William Dennis, senior research fellow at the NFIB Research Foundation. In fact, 30 percent of respondents said they'd been closed for 24 hours or more within the previous three years due to a natural disaster.

Often, it's tough to see the need for a disaster plan, particularly if a business owner is already stretched thin with daily operations and hasn't been negatively affected by a disaster in the past. Charlie Sidoti, vice president of risk control services for OneBeacon Insurance, says that many business owners' estimates for the time and effort it takes to recover from a disaster are “wildly optimistic.”

Bob Snowden, president of Grand Rapids, Mich.–based Snowden Builders, admits that he hasn't formally prepared his company for a disaster. He assumes that the company's data is being backed up and says that cell phones would “probably” be the employees' means of communicating. “I don't have anything in place,” he says. “I'm not prepared for it. I'm sure we would come up with something. Hopefully that never comes.”

Many companies are stymied in the disaster preparedness process because they don't know where to begin or whom to ask for help. But since Sept. 11, 2001—which affected nearly every business nationwide in one way or another—those questions have been easier to answer. “A whole industry has grown and expanded,” says Carol Chastang, a spokeswoman for the federal Small Business Administration (SBA). “[Disaster planning] is not as daunting, and not as expensive, as one would think. The real expense will occur if you don't do anything and you lose your business.”

Chastang directs many small business owners toward the “Open for Business” program, developed by the Institute for Business and Home Safety, a nonprofit organization supported by insurance companies. The program, which is available in a Web-based format to member insurers' customers and for download by any business from the group's Web site, includes information about disaster preparedness and a series of worksheets to help business owners think through everything they would need to recover from a disaster, including how to contact key vendors and continue meeting payroll.

Chubb Insurance developed a similar tool for its clients. It breaks disaster preparedness planning into three components: before, during, and after the event. But Sam K. Lee, vice president of risk management services for Chubb Services Corp., says that he also encourages clients to begin the planning process by thinking of a generic scenario, such as a disaster that forces their office to be closed for a month. “What do you do?” he asks. “That helps them get started. If you develop a plan for a scenario, you don't need a lot of contingencies. You'll meet 80 percent of what can go wrong with your business.”

Such types of planning exercises can help business owners become more informed insurance consumers, says Diana McClure, assistant vice president of business protection for the Institute for Business and Home Safety. “They begin to realize what insurance coverages they really need, or they understand the options better.”

Experts strongly encourage small businesses to look closely at what their insurance covers early in planning for disasters. Many builders assume that their builders' risk and additional property insurance will get them through. While those may cover the costs of repairing physical damage, they likely won't make up for lost income if there's a period of time when the company can't operate or until it can begin closing homes again.

That's where business interruption insurance comes in. It's a type of “time element” insurance, meaning that it's bought in terms of days, weeks, or months of coverage; the cost rises accordingly. Chastang says that many small business owners decline the coverage for that reason, but “it's something a business should consider,” she says. Many respondents to the NFIB disaster survey might like a chance to reconsider: Among those who said they'd been affected by a disaster, 62 percent said their biggest problem was the loss of sales and customers; 59 percent weren't adequately insured to cover the loss of those sales.

Some builders may look more closely at it in light of the massive destruction wrought by last year's hurricanes. “We've always had it, but not an amount that would be near the amount [to cover] a business disaster,” says Joe Pusateri, president of Louisville, Ky.–based Elite Homes. Before his insurance policies renew June 1, he says, he'll consider increasing that coverage. “If we were a builder in New Orleans and that happened, we would just be out of business. It would be 29 years down the drain.”

Mike Dishberger, CEO of Houston-based Sandcastle Builders, says that his company's location has forced him to plan for disasters for years. After considering his options, he's decided against business interruption coverage. “We have money in our accounts to fuel the company if we have to. The key is not to spend all your money as you get it. It's an emergency fund,” he says.

But insurance is just one piece of a disaster preparedness plan. “It doesn't help you with your reputation or how you handle a disaster,” McClure cautions. “Have you met your customers' needs? What if a competitor gets up and running much faster?”

A clear communication plan lets both customers and employees know what the business' plan is following a disaster. Rumors often develop in the absence of direct communication, says Chastang of the SBA. She recommends developing plans for communicating both with employees and outside stakeholders, such as customers and vendors, which can sometimes be accomplished through the media. “Make sure people know you're rebuilding, you're still going to fulfill orders, or any new phone numbers,” she says. “That will ensure confidence with [your] customer base and employees.”

McClure emphasizes “redundancy and alternatives.” Know multiple ways to reach your employees and keep that information wherever you might need it—in the office, at home, in your car. Think beyond the obvious, she says. In a disaster, cell phone lines might be flooded, but text messaging or satellite phones could work. “The idea is developing alternative ways of communicating and thinking of them ahead of time,” she stresses.

The employees of Brass Brick Homes, in Oklahoma City, face the annual dangers of tornadoes. The company has escaped some sizable twisters nearly unscathed—including the infamous May 3, 1999, F5 tornado that swept through the city with winds of more than 300 miles per hour—but managers are preparing for the day that pattern may not hold. They're building a Web site where employees and customers would be able to communicate through an online forum. “If a tornado goes through and wipes down all the phone lines, we know the phones would be clogged or not working,” says Ashley Christofferson-Cunningham, the company's president. “We hope somehow, some way, they'd be able to get access to a computer.”

Most disaster plans appear in the area of technology. Many builders say that they routinely back up their computer files, and that those backups are kept in an off-site location.

Sales offices or model homes also provide a form of backup, with computers tied into the company's network but set apart from the main office. Those offices would provide a great alternative location after a disaster. But what if the disaster is region-wide? The SBA recommends keeping at least one set of vital records at least 50 miles away, which can help speed the recovery process after a disaster

As small businesses' disaster planning matures from keeping backup tapes in a bedroom drawer to keeping them in a storage facility in a nearby state, experts challenge managers to integrate disaster preparedness into their businesses' strategic plans. “Good companies are always thinking of contingencies. Planning is not a separate part of the business,” OneBeacon's Sidoti says. “When you're deciding how many pieces of equipment to get, think about how it impacts your continuity planning or the long-term survival of the company.”

In other words, the more often you ask, “What if?” the more comfortable you'll be with the answers.

Planning for disaster recovery can seem daunting at the outset. Here's a list of pieces to consider, as recommended by the Institute for Business and Home Safety:

A Gulf Coast builder survived after the storms thanks to detailed advance planning.

Hurricane Andrew pushed The Mitchell Co. into action. The production builder, headquartered in Mobile, Ala., had divisions throughout Florida and the Gulf Coast. The company had experienced destructive storms in the past, but time had passed between them, and that's when “people tend to get complacent,” says John Saint, president and CEO.

After watching video of what went wrong in the aftermath of Andrew, The Mitchell Co. developed its first disaster plans. Those plans have evolved to include a personal disaster plan for each employee, stockpiles of water and ready-to-eat meals, and generators to keep the business operating.

The last two hurricane seasons tried every facet of the plans. But they worked, and as a consequence, the company even managed to close 25 homes the week Hurricane Katrina hit. Saint attributes the success to the plans' foundation in taking care of employees. “If we get our people taken care of, our business will come back quicker,” he says.

The company encourages employees to evacuate hurricane zones. But before they leave, they need to tell the company where they're going and how they can be reached. That helped the company to know where every employee but six was after Katrina. The employees know how to reach the company, too. On their first day at work, they're given a communication card to keep in their wallet with instructions on what to do, where to go, and whom to call in the event of a disaster.

They've taken communication a step further, too, by installing a satellite phone network that will work even if landline and cell phones don't. Office phones operate off the network, and every manager has a portable satellite phone as well. Saint says it's a worthy expense that many businesses could absorb: It cost just $9,000 for the network.

Thanks to its size, the company has been able to install other, more-costly disaster recovery pieces, such as portable generators for subcontractors (to help keep the subs working on Mitchell projects, not storm-related roof repairs) and a 12,000-gallon fuel storage tank to keep employees and subcontractors driving after a storm.

“A lot of these are the things you learn because you didn't do them the first time,” Saint says. The company has a disaster evaluation meeting 30 days after a storm, and it asks employees to e-mail suggestions for improvements. And—as experts recommend—the company has integrated storm planning in its annual budget plan. “The last question we ask,” Saint says, “is, ‘Is your hurricane plan together? What did you not have last year [that you] need this year?' ”

NATURAL DISASTER HOT SPOTS

SOURCE: INSTITUTE FOR BUSINESS AND HOME SAFETY