Over the last five years, the U.S. has averaged more than 17 major weather or climate-related disasters annually, according to the National Centers for Environmental Information.
Hurricanes, wildfires and other natural disasters have great financial costs, including for small-business owners. Among small businesses in FEMA-designated disaster zones that suffered losses after natural disasters, 64% lost physical assets and 96% lost revenue, according to a 2017 study from the Federal Reserve Banks of Dallas, New York, Richmond and San Francisco.
Business insurance can help protect your business from such losses, but business owners also need to be proactive about creating disaster plans and learning about emergency financing options.
Planning ahead “reduces your stress as the owner and the one responsible for getting this business back up and running,” says Frank LaMonaca, chair of the Southeastern 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 evaluate your property, says Jim Armitage, an insurance agent with The Liberty Company in California. Take photos and videos throughout your property and store them with your insurance policy to jog your memory, or to share with your insurance company, later on.
“You’re going to be much happier and are going to survive much better” if you can easily identify what you lost, Armitage says.
In general, businesses that own a building or have physical assets, like inventory or furniture, should have business property insurance. If your business closes while you recover from a disaster, business interruption insurance can help make up for your lost revenue.
Those policies won’t cover everything, though. Floods and earthquakes usually require separate coverage, for example. Armitage also recommends knowing your policy’s wind and hail deductibles — you’ll have to pay for those upfront.
“Don’t take it for granted that [a disaster] is included in your insurance. It may not be,” Armitage says.
Working with an insurance agent or broker can help you stay on top of the claims process during a stressful time, LaMonaca adds: “You really need someone in your corner, when [a disaster] does hit, that you can call and is going to go to bat for you.”
Plan for liquidity
Costs can mount after a disaster. It can take time for insurance companies to process and pay out claims. And if your business has to shut down while you recover, you may not be able to rely on your usual cash flow.
“There really is no substitute for sufficient liquidity that bridges 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.
Maintaining a relationship with a local banker or working with an online lender can make it possible to take out 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. To 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.
“Build pockets of liquidity, then draw on them, and keep your own for last,” he says.
Create a business continuity plan
A business continuity plan spells out how your business will continue to operate after a disaster hits, says Christie Bonacci, a certified public accountant and senior wealth advisor at BlueSky Wealth Advisors in North Carolina.
When creating yours, consider:
Employees’ access to technology and ability to work remotely.
Vital records, like ensuring that important documents are stored in the cloud or safely off-site.
Cybersecurity, like ensuring that 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, then practicing your plan. Her company does surprise simulations to make sure employees know what to do.
Ready.gov also offers checklists and tool kits that can help you prepare. It’s a lot of work, but it’s worth it, Bonacci says.
“Most people never complain that they’re over-insured or over-prepared when experiencing a natural disaster,” she says. “They may complain about the cost or the time involved prior to that, but when the natural disaster hits, they’re not complaining.”
Additionally, LaMonaca suggests creating a file with all the documents you’ll need in a disaster and phone numbers for key contacts, like your insurance agent. Having all 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 fortunate ones, identify ways — whether that’s your time, your talent or your treasure — to help the people that were adversely affected,” Bonacci says. “In the wake of the disaster, that’s where humanity shines.”
Lastly, she says, set aside time to reflect, learn and make changes to your disaster plan.
“When it’s all over, you want to document the lessons you learned and update your plan,” Bonacci says, “because it’s probably going to happen again.”