Do you have a disaster plan in place for your small business? Don’t wait until a disaster is already beating down your door! The following article will offer some helpful tips as well as some free emergency action plan template downloads to help you get started.
When hurricanes Harvey and Irma blew through the southern parts of the U.S. two months ago, many small business owners were tragically unprepared for the resulting damage and loss of business. Unfortunately, it often takes a disaster the size of a major hurricane to highlight an issue common among numerous smaller companies: when it comes to emergency planning, many, many small business owners fall short.
One of the givens of running a small business is that they are going to be some bumps along the way. Those bumps get bigger if you are relatively new to running a business, you are new to a particular industry, or you are working in a so-called “high-risk industry,” such as retail or anything tied to agriculture. How you handle these unexpected potholes and detours can be the deciding factor between the recovery of your business and it’s failure
One of the most quoted statistics from the Small Business Association (SBA) is that over half of new small businesses won’t be around a mere five years later. It’s a sobering thought. Running a business is hard. Success in business takes not only a lot of trial and error and a lot of work, but also some combination of the right tools, the right connections, and the right timing. Getting to those right resources is never hit or miss. Successful entrepreneurs mostly take calculated risks. They don’t just throw their resources against the wall to see what sticks. Look at any interview, article, or book ever written about a successful entrepreneur, and you’ll see this same message over and over again.
If you take your business and its resources seriously, then preparing for an emergency is not one of those areas where you can skimp.
That said, there are three main parts to a responsible small business disaster plan:
A clearly spelled out emergency action plan
A comprehensive business insurance policy
An emergency fund
I’ll go through each one of these areas below:
1. Filling in an Emergency Action Plan Template
An emergency action plan describes the actions you and your employees should take in case of fire or other emergency situation. Keep in mind that workplaces with more than 10 employees must have an emergency action plan in writing. OSHA’s interactive training program on Emergency Action Plans can help you understand the regulation you need to develop your plan.
When the unexpected strikes, you want to have a system already in place that details the steps you and your employees need to take as well as the resources you have at your disposal to properly deal with the situation at hand. This may include knowing how to contain the damage, protect sensitive data, and provide physical protection for you, your employees, and your customers. Your disaster plan should also include a clear breakdown of who will actually do the things that need to be taken care of.
Every business and location is different, and your small business disaster plan needs to reflect those differences. That process starts with being aware of the emergency risks and hazards that are inherent to your business. Each occupation and process has different kinds of risks attached to it. For example, restaurants need to be particularly careful about kitchen fires, while a tech based business would be more concerned about protecting their sensitive data or their digital equipment
The next step is to do an audit of your physical location to determine what safety and security equipment you need to invest in as well as what training you or your employees will need to receive. For example, you and some or all of your employees should be properly trained on how to use fire fighting equipment, such as fire extinguishers, to suppress small fires at work.
To help get you started in the development of your emergency action plan, here is a list of the best free emergency action plan template downloads directed at smaller businesses that I could find. After educating yourself about the safety rules and regulations that you need to follow, you can download one or all of these templates and start tweaking them to fit your particular business:
There should also be a system for protecting and mobilizing assets. Some steps to include are:
Assessing damage and/or total unexpected expenses
Contacting your insurer(s) to get coverage support and information
Contacting vendors and suppliers regarding any changes to outstanding or reoccurring orders and the payment of outstanding balances.
Tapping emergency funding resources (more on this below)
Where there will be a disruption in service, then you’ll also need to let your customers know what to expect in the coming days and weeks.
If your business was hurt by a natural disaster then you should familiarize yourself with any federal or state financing that may be available to you. The Federal Emergency Management Agency (FEMA), provides various kinds of financial assistance to individuals and businesses effected by a natural disaster, and the SBA also offers a series of disaster loans.
2. Taking Out a Business Insurance Policy
In order to save money, many small business owners avoid taking out even the most standard insurance
policies. While it’s true that you’ll save money on monthly premiums, it may cost you big time if you end up needing coverage later on. For small businesses, there are basically five kinds of business insurance to consider:
Comprehensive general liability insurance. This is a general form of liability insurance that covers claims for bodily injury and property damage as a result of visiting the business’ property, using products or services offered by the business, and even the damage caused by the negligence of an independent contractor.
Workers’ compensation insurance. If you hire employees, then worker’s compensation insurance will provide financial coverage in the event of a job-related injury or disease.
Business property insurance. This form of business insurance protects you against the loss of inventory or equipment in the event of a flood, fire, or other physical disaster.
Business credit insurance. Credit insurance is designed to protect your business from clients who fail to pay their invoices due to insolvency or bankruptcy. Credit insurance usually covers a portfolio of the business’ customers, but it is also possible to cover single transactions or trade with only one customer.
Business interruption insurance. This kind of insurance will help cover some of the income lost during an emergency till the business recovers. Usually, such policies cover your fixed operating expenses, lost profits, and the cost to set up a temporary location.
3. Having an Emergency Fund in Your Small Business Disaster Plan
In order to make it through a financial emergency, one of the most basic elements to have in place is a quick and accessible source of financing, and the truth is that there may be many options at your disposal. Here is a brief rundown of three popular options:
Create an emergency fund. Most financial experts suggest that business owners put aside enough money to cover between three to nine months of basic fixed expenses. You could do this by taking out a small portion (5-10%) of your monthly revenues and put it into a business bank account exclusively dedicated to your emergency fund. Think of it as a rainy day tax. To make sure you actually put this money aside instead of spending it on your business, you can set up a payroll deduction or automatic withdrawals. Additionally, you could take advantage of a sudden cash windfall, such as a tax refund or an exceptionally strong period of sales and dedicate a portion of this money to your emergency account.
Maintain a business line of credit. While it may not be so easy these days to just walk into your local bank and set up a revolving line of credit, you may be able to at least set up some overdraft protection on your business accounts. This will help you to avoid the bounced checks and declined payments that will only make your situation worse. Alternatively, you could maintain a business credit card and use it for occasional charges just to keep the account open in case you need to use it for some future cash emergency.
Micro loans and asset-based financing. If you haven’t been able to put enough money aside to cover your expenses, then you may get some quick financial relief via a short-term micro loan or an asset-based financing arrangement, such as accounts receivables factoring, business cash advances, and revenue based financing. Though these options may be more expensive than a standard bank loan, the requirements for approval are relatively easy to fulfill and the money can typically be funded in a matter of days.
No matter how great or uneventful things may seem now, life can throw you an unexpected curve ball, sending your business into a sudden financial emergency. The more prepared you are, the better your chances of successfully riding out the storm.