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Planning To Survive: Disaster Preparedness For Small Businesses
Sarah Hager Johnston | Peregrine Information Consultants
After a natural disaster or catastrophic accident, most news stories focus on individuals and families who suffered injuries, lost their homes or property, or lost loved ones. But after a few days, the TV cameras move on, and there is little exploration of the economic damage that emerges in the days and weeks that follow.
Just as homes can be swept away by a flood, or families displaced by hurricanes or power outages, so can businesses – especially small businesses and family-owned businesses – be permanently affected by emergency situations.
You’ve worked hard to establish and grow your business. How will you fare should a disaster strike?
Small Businesses are Vulnerable to Disasters and Emergencies
Most small businesses operate at single locations, with employees, computers, machinery, equipment, and other resources concentrated in a single building. In a disaster situation, the entire physical and online operation is at risk.
Most small businesses also do most of their business locally. The U.S. Small Business Administration estimates that for 9 out of 10 small businesses, the majority of their customers are within two miles of their locations. And many small businesses depend on other businesses in the community for professional services, technical and mechanical support, supplies, and more. In a disaster situation, a small business is at risk of losing customers and suppliers, perhaps permanently.
Unlike larger multi-site businesses whose employees, offices, IT facilities, and physical assets are spread over a larger area, and whose customers may be found around the globe instead of across the street, small businesses are disproportionately affected by storms, disasters, and other emergency situations that can knock out power and telecommunications, interrupt supply chains, and make it impossible for employees to report to work.
In fact, the Insurance Institute for Business and Home Safety (IIBHS) reports that about 25% of small businesses that are affected by major disasters never recover. And according to the U.S. Chamber Foundations Business Civic Leadership Center, nearly 30% of the small businesses that were damaged or disrupted by Hurricane Sandy in 2012 eventually failed as a direct result of that terrible storm.
It’s likely that the businesses that survived and thrived had effective plans in place to help them prepare for, respond to, and recover from emergency situations. It’s surprising, then, that only 4 in 10 small businesses have disaster preparedness and recovery plans in place, and of those that do have such plans, nearly all (9 in 10) spend less than one work day each month on emergency planning and preparedness activities. Those statistics are not surprising, given that small business owners, especially the self-employed, are hard-pressed to find time to even evaluate their risks, let alone develop comprehensive plans for response and recovery.
Like any essential part of your business – product development, staffing, sales, or marketing – emergency preparedness is a critical core function that requires careful planning, adequate resources, and regular review and refinement. Some industries are required by law to have adequate emergency plans in place, due to the essential nature of their services (such as utilities) or the hazardous nature of their operations (such as chemical processing plants). While most small businesses are probably not required to have emergency plans, it is good business sense to take all reasonable steps to be prepared.
If you don’t have a plan in place, or if your plan has been gathering dust on a shelf, schedule some time to develop a new plan or refresh the one you’ve got. Though it will take time to develop a comprehensive plan, there are plenty of resources and templates available to get you started, and you can tackle one piece at a time. It can be a challenge to set aside the day’s pressing business to plan for unpleasant events that may not even happen, but the exercise is a worthwhile opportunity to assess all areas of your business, from employee schedules to office supplies.
Identify Potential Emergency Situations
As a first step, conduct a risk assessment to identify the emergency situations to which your business is vulnerable.
The IIBHS offers an online tool that identifies (by ZIP code) the natural disasters that could occur in your area, such as hurricane, flood, tornado, ice or snow, lightning, extreme temperatures, wildfire, wind, hail, drought, etc.
But natural disasters are just part of your risk profile.
- Building system failures, such as loss of refrigeration, water, or heat, or failure of a water heater
- Technological failures, such as loss of power, telecommunications, or data systems, whether due to outside circumstances (truck hits a utility pole) or inside problems (computer failure, no back-up)
- Civil disturbances (riot) or terrorism
- Civic events (parades, running races) that affect traffic near your business
- Accidents, such as a fire or explosion at your facility or at a nearby business, or a truck crashing into your office
- Disruption to your supply chain, such as if your primary supplier is affected by a disaster, strike, or other emergency
- Pandemic disease, such as a severe outbreak of flu that affects many employees
Understand How Emergencies Could Affect Your Business
Once you’ve identified the emergency situations that could affect your business, undertake a business impact analysis to explore the degree to which an emergency could affect your business operations and to identify the information you’ll need to plan a rapid recovery. In the business impact analysis, consider how an emergency situation will affect you…
Facility How will your building (or rented/leased space) be affected by any of the potential situations you’ve identified?
Revenues How much lost or delayed income can your business bear? Without your usual revenue stream, will you be able to keep up with payroll, rent, loan payments, and other recurring expenses?
Expenses What might be needed to cover emergency-related activities and resources? Your “rainy day” fund might not be sufficient to support your business during an extended emergency.
Customers How will your customers be affected if your operation is shut down for an hour, a day, a week, or a month?
Employees How will your employees be affected by an emergency situation at your business or in the community? Can you bear the added expense of hiring and training replacement employees, should that be necessary?
Suppliers and vendors What will happen if a key supplier is unable to deliver critical supplies or equipment? Even if your business is not directly affected by an emergency, your suppliers may be.
Products or supplies How will an emergency affect products or supplies you have stored on site? Do you need to maintain certain temperatures or other conditions, such as for food storage?
Contractual obligations Will you incur penalties from unfulfilled contracts, or lose contract bonuses?
Consider how the timing and duration of an emergency event could affect your business, such as if road construction blocked entry to your parking lot during your busiest week of the year.
Depending on the complexity of your business and the nature of your operations, you may undertake this analysis on your own or engage a professional risk manager or emergency planning consultant.