Protecting Your Business From a Natural Disaster

Dont let a natural disaster spell ruin for your business. Learn from the experts how to protect against and recoup financial losses.

When Hurricane Katrina struck the gulf coast in 2005, it left an estimated $75 billion in damages in its wake. Although Hurricane Irene’s east coast rampage last month wrought far less havoc in comparison (estimated damages totaling between $7 and 13 billion), small business owners still saw hefty losses.

“Obviously you can’t stop a natural disaster from happening,” says Jim Kinmartin, a commercial insurance agent for ISU–The Olson Duncan Agency. “But if you’re prepared, it can make or break the survival of your business.”

Find the right insurance coverage. Bracing your business for the financial worst starts with selecting the right insurance plan, which, unfortunately, many small business owners fail to do because of sticker shock.

“The No. 1 thing people ask when they have a loss or a claim is, ‘Do I have that coverage?’” says Kinmartin. “The biggest thing I can convey is people thinking it will never happen to them, but when it does they learn the value of the coverage. A small premium every month in relation to a large loss is pocket change when it comes to that time of need and emergency.”

Shopping around for the right plan is only as effective as knowing exactly where you’re covered. As many small business owners know, flood and earthquake insurance are not covered in standard policies—but even if purchased separately, portions of your business may still be vulnerable.

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As was the case for Ayal Bar-Am, owner of the Salt Ash Inn in Plymouth, Vt., when Hurricane Irene swept through last month.

“The outside of the building is not covered by flood insurance and the primary insurance carriers won’t cover that,” he says. “So for me I have a pool in the backyard that has a landslide in it, and I’m not going to see any financial compensation for that.”

For small business owners like Bar-Am, loss of business due to a natural disaster can be just as financially crippling as damage done to actual property. With Hurricane Irene touching down the last weekend in August, Bar-Am’s inn took a hit in revenue during the typically busy Labor Day weekend—and he worries his business will miss out on the foliage season as well.

“Even with all the recovery efforts being made, people out there are seeing the devastation, and who wants to vacation in a disaster area?” he asks.

Situations like Bar-Am’s beg the need of business interruption insurance, which Kinmartin urges small business owners to get under an actual loss sustained basis. With ALS, insurance carriers will cover net costs and pay the amount of business income actually lost, as opposed to “valued” coverage.

“Typically they give you 12 months actual loss sustained, so that gives you ample time to get back on your feet in the event of a disaster,” says Kinmartin.

Take advantage of government programs. Government disaster loan programs are also another source of cash flow available to help small business owners get back on track.

For Tesha Buss, the Vermont Economic Development Authority’s (VEDA) emergency loan program has been “brilliant.” Buss, owner of boutique retreat destination Good Commons and a charter bus service in Plymouth, has submitted applications for both her businesses and has been impressed with the state’s quick response.

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“When you’re a business owner and you’ve got all this water in your basement and you’re thinking about the financial effort, it gets at your spirit,” she says. “The biggest thing to combat is trusting that you’re going to be given the resources to rebuild.”

Fortunately, VEDA is allowing small business owners to do just that, having allocated $10 million in special low-interest financing for Vermont businesses and farms damaged by Hurricane Irene.

For more information, check out the disaster relief pages of the Small Business Administration, FEMA, and the IRS.

Keep your customers in mind. Aside from reviewing insurance coverage and government programs, keeping in contact with your customers is a vital component to financial recovery.

“Have the readiness for your own sustainability,” says Dr. Larry Barton, a crisis management expert. “If you are unable to respond to customers because of your own lack of preparedness, not only do you lose the faith of those customers, you’re unlikely to gain it back.”

Whether through emails or phone calls, having the means of correspondence open and active to address any questions your customers have “does more than anyone realizes,” says Dr. Barton.

“They don’t expect immediate satisfaction—they understand things will be disrupted. But they still want to talk to a live body, and that’s where you have a wonderful opportunity to show business continuity.”

Cementing relationships with your customers undoubtedly proves beneficial during moments of crisis when every sale counts more than ever. Buss saw considerable damage to her Good Commons building but has managed to keep reservations interrupted by Hurricane Irene.

“One heartening thing is that I do have a few returning customers that were supposed to come over the Labor Day weekend, and they have told me that they’ll allow me to hold their deposit instead of returning it to them and that they’ll come back in the future,” she says.

Consider a partial opening. Bucking the financial fallout of a natural disaster also lies in your ability to get your business up and running as quickly as possible—even if you’re far from 100%.

“A partial opening and a partial response are better than none,” says. Dr. Barton. If you own a coffee shop, for instance, and your shipment of beans is delayed because of the storm, opening your business and selling items you do have in stock, like pastries or tea, will prove your resilience and aid in customer retention.

“The point is if you can at least have a partial response for your customers in the days after a disaster, it does more to say to people that you don’t just talk a good game about putting customers first, you were actually there for them,” says Dr. Barton.

Dealing with a natural disaster is a devastating experience for anyone—but as Dr. Barton points out, the stakes of recovery are far higher for small business owners.

“We all want to be sympathetic to one another after a natural disaster,” he says. “But when you’re a business, you’re a resource and you’re expected to be stronger than I am as one person.”

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