Imagine pouring your passion, energy, time, and finances into getting your small business off the ground, only to experience an extreme and detrimental disaster, completely out of your control. According to the Federal Emergency Management Agency (FEM), 40% of businesses never reopen after a disaster. Implementing steps to prepare for and respond to disasters can help to reduce a small business loss. Protect your business from unavoidable interruptions by creating a disaster plan from the following recommendations.
Why Have a Small Business Loss Plan?
Besides the obvious financial risks, why should you have a plan in place in the event of a loss? Having a small business loss plan in place serves the following purposes:
- To protect employees and personnel
- To prevent environmental contamination
- To protect revenue, assets, and information
- To prevent loss and to contain loss that occurs
- To protect your reputation
How to Minimize Business Interruptions
Let’s get to planning! Here are six steps you can take to help minimize small business loss and interruptions:
Determine the Risk
When determining the potential risks for business interruptions, consider both environmental risks and human risks. Additionally, consider which risks are preventable and which are not.
Once the risks are identified, you can begin to understand all elements involved, such as the hazard itself, the assets at risk, vulnerability to the risk and the ultimate impact of the risk. To best prepared, rank each risk according to the likelihood of occurrence and the severity of impact.
Calculating the Cost of Interruptions
After the risks have been ranked, analyze the impact of each risk. In calculating cost containment, the following should be considered:
- Lost sales or income
- Increased expenses
- Regulatory fines or contractual penalties
- Delay of business
Understand Your Insurance Coverage
The next step would be to review your insurance coverage. Business interruption insurance generally comes into effect in the case of one of three circumstances:
- Physical damage to the premises that cause suspended operations;
- Damage to property that is covered by the insurance policy and prevents customers or employees from accessing the business; or
- The government closes an area due to property damage that is covered by the insurance policy and prevents the customers or employees from accessing the business.
Since business interruption coverage can differ significantly, it is important to understand the policy terms, such as exclusions, coverage limits and waiting periods. Coverage is provided for lost net income only for the duration of regaining operation.
Implementing Steps for Prevention and Mitigation
There are three different approaches for controlling and containing potential hazards to your small business:
- Prevention: This method identifies preventable hazards and implements steps to avoid occurrence of the hazards.
- Deterrence: This method identifies potential criminal activities that create business hazards. Steps are taken to prevent the criminal activities.
- Mitigation: This method identifies hazards that cannot be prevented, such as natural disasters. Steps are taken to control and contain the hazards in case of an occurrence.
Create a Crisis Communication Plan
Create a crisis communication plan to provide employees and customers with updates and critical information regarding your small business loss. The communication plan should have the following:
- Chain of command: A chain of command allows for information to be shared efficiently and ensures that all personnel receive information from their direct supervisor.
- Pre-scripted messages: Eliminate confusion by pre-scripting messages that will be shared with customers, employees and the public.
- Bi-directional communication network: Allow for communication to occur in multiple directions in order to efficiently pass information.
Preparing an Emergency Plan
As much as possible, an emergency plan should be prepared and in place before a hazard or disaster occurs. The plan should be practiced and reviewed by key stakeholders to ensure the effectiveness of the plan. The plan should include the following elements:
- IT and data recovery: Implement a data backup program to protect and recover important and sensitive information. Create a technology policy that assists in preventing data leaks in the case of telecommuting employees.
- Contracts: Pre-arrange written contracts with other businesses and external suppliers in order to continue fulfilling commitments to customers.
- Resources: Prepare an inventory of resources that are essential to regaining the ability to operate as a business.
- Test: Run a test of the plan to ensure the plan’s success.
By taking these six steps, you position yourself to minimize potential hazards and limit the impact of a small business loss. Interested in understanding what small business loss your insurance covers? Contact Coterie Insurance today for assistance reviewing and updating your emergency plan and insurance.
