Over the past five years, the United States has averaged more than 17 major weather or climate disasters per year, according to the National Centers for Environmental Information.
Hurricanes, wildfires and other natural disasters have significant financial costs, including for small business owners. Of small businesses in FEMA-designated disaster areas that suffered losses after natural disasters, 64% lost physical assets and 96% lost revenue, according to a 2017 study by Federal Reserve Banks of Dallas, New York. York, Richmond and San Francisco.
Business insurance can help protect your business from such losses, but business owners should also be proactive in creating contingency plans and learning about emergency financing options.
Planning ahead “reduces your stress as an owner and responsible for getting this business back up and running,” says Frank LaMonaca, president of the southeast Connecticut chapter of business mentoring organization SCORE.
Here’s what you need to get started.
Understand what you have and what your insurance covers
Don’t wait until it’s time to file an insurance claim to appraise your property, says Jim Armitage, insurance agent at The Liberty Company in California. Take photos and videos throughout your property and store them with your insurance policy to refresh your memory or to share with your insurance company later.
“You’ll be a lot happier and survive a lot better” if you can easily identify what you’ve lost, Armitage says.
In general, businesses that own a building or have physical assets, such as inventory or furniture, should have business property insurance. If your business closes while you recover from a disaster, business interruption insurance can help offset your lost revenue.
These policies won’t cover everything, however. Floods and earthquakes usually require separate coverage, for example. Armitage also recommends knowing your policy’s wind and hail deductibles – you’ll need to pay these up front.
“Don’t take it for granted that [a disaster] is included in your insurance. That may not be the case,” says Armitage.
Working with an insurance agent or broker can help you stay on top of the claims process during a stressful time, adds LaMonaca: “You really need someone in your corner, when [a disaster] knocks, which you can call and will beat for you.
Costs can increase after a disaster. It can take time for insurance companies to process and pay claims. And if your business has to close while you recover, you may not be able to rely on your usual cash flow.
“There’s really no substitute for having enough cash to top up your insurance coverage,” LaMonaca says.
Start with disaster-specific funds, like SBA Disaster Loans, which often have low interest rates and long repayment terms. Grants may also be available.
Having a relationship with a local banker or working with an online lender can help you get a business loan quickly.
If you need more support to get to the other side of the disaster, LaMonaca says, you can turn to your personal resources. For some new business owners who own homes, he suggests opening a home equity line of credit that you can treat as an emergency fund if other forms of financing aren’t available.
“Create pockets of cash, then dip into them and save yours for last,” he says.
Create a business continuity plan
A business continuity plan explains how your business will continue to operate after a disaster, says Christie Bonacci, chartered accountant and senior wealth advisor at BlueSky Wealth Advisors in North Carolina.
When creating your own, consider:
- Employee access to technology and ability to work remotely.
- Vital records, like ensuring important documents are stored securely in the cloud or offsite.
- Cybersecurity, like ensuring employees have access to a virtual private network.
- Production facilities and equipment.
- Inventory and supply chain resources.
Bonacci recommends putting someone in charge of implementing the business continuity plan, adding a backup person, and then practicing your plan. His company does surprise simulations to make sure employees know what to do.
Ready.gov also offers checklists and toolkits that can help you prepare. It’s a lot of work, but it’s worth it, says Bonacci.
“Most people never complain about being over-insured or over-prepared when faced with a natural disaster,” she says. “They may complain about the cost or the time it takes before that, but when the natural disaster hits, they don’t complain.”
Additionally, LaMonaca suggests creating a folder with all the documents you’ll need in the event of a disaster and phone numbers for key contacts, like your insurance agent. Having all of these resources in one place can help you stay calm and focused.
Learn and evolve
When disaster strikes, having plans in place can make it easier to focus on what’s most important: people.
“If you’re the lucky ones, identify ways — whether it’s your time, your talent, or your treasure — to help those who have been affected,” says Bonacci. “After the disaster, this is where humanity shines.”
Finally, she says, set aside time to reflect, learn, and make changes to your emergency plan.
“When it’s all over, you want to document the lessons you’ve learned and update your plan,” Bonacci says, “because it’s probably going to happen again.”
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