Business Loans

How to Create an Emergency Preparedness Plan for Your Business

When Hurricane Harvey struck Houston in 2017, the neighborhood around Janice Jucker’s business, Three Brothers Bakery, flooded for the third time in fewer than three years. Thankfully, she had an emergency preparedness plan in place.

With a couple of other floods under her belt already, Jucker knew she needed to start planning for the worst-case scenario even before the storm hit. After Hurricane Ike arrived in 2008, she had to close her bakery for nine months, and she was determined not to let another storm disrupt her business for that long again. As soon as reports of Hurricane Harvey started to come in, she called her insurance company and put a local restoration business on notice. Thanks to those efforts, after the storm struck and the building was accessible, she was able to quickly start cleanup efforts.

“You just have to get up and running fast,” Jucker said. Jucker said she had to close her business for only 17 days after Hurricane Harvey, thanks to her prep work. In April, Jucker received the SBA’s 2018 Phoenix Award for Outstanding Small Business Disaster Recovery. Although she said it’s not an award you would necessarily want to qualify for, Jucker calls herself the “queen of disasters.”

Small businesses in all regions are at risk from natural disasters, especially during warmer months of the year. Hurricane season in the Atlantic runs from June through November, and tornadoes are most common in the North and South from March through May. Wildfires are also a major threat during summer. In 2018 alone, more a dozen states have battled — or are still fighting — large fires.

All small business owners should take precautions to protect themselves from natural disasters, said Lynn LaGram, assistant vice president of small commercial product at The Hartford Financial Services Group.

“Natural disasters could be very impactful to a small business owner,” LaGram said. “They often have less resources than a larger firm to deal with the unprecedented.”

A 2017 Federal Reserve Banks of New York report analyzed how a record-breaking year of natural-disaster damage affected small businesses in Dallas, San Francisco and Richmond, Va. And some 40 percent of companies that experienced a natural disaster in those cities reported damage.

The most common cause of damage was loss of power or utilities, followed by flooding. The report found only 16 percent of affected businesses had flood insurance at the time of the disaster, and just 17 percent had business-disruption insurance. Sadly, 27 percent had no insurance at all.

Keep reading to find out what to put on your disaster-preparation checklist. Always hope for the best, but prepare for the worst.

Emergency preparedness plan: before disaster strikes

Three Brothers Bakery, which Jucker’s father-in-law opened in Houston in 1949, first flooded in 2001 after a tropical storm and again in 2008 when Hurricane Ike hit the city. After the flood in 2008, Jucker decided to be proactive and better prepare the business for the next storm. Here is what you need to do:

Backup important documents.

Jucker began using QuickBooks software for accounting and bookkeeping and moved all her financial documents to the cloud. That way, if her computer suffers any damage, she doesn’t have to worry about losing information, she said.

If you are unable to move your documents to the cloud, you could keep a duplicate server in a separate location that’s safe from storm damage. You should protect hardware from power surges or outages and consolidate important records and contracts to minimize the loss of information.

You could also store crucial data and documents on an external hard drive that you could carry with you. The more data you move off site, the less you have to worry about losing in a disaster.

Identify gaps in insurance coverage and try to fill them.

Insurance policies for business owners typically don’t include flood insurance, LaGram said. In most cases, you need a separate policy to cover damage from floods.

Commercial flood insurance for businesses is available from the federal government’s National Flood Insurance Program through your local insurance agent, as well as some private insurers. Commercial flood insurance usually provides up to $500,000 to cover your building and up to $500,000 to cover its contents.

Jucker knew what type of damage the insurance company would cover after a natural disaster and what additional coverage she needed to buy to fill any gaps.

“You need to read your insurance policies not after an event, but after you get them,” she said. “I read them from cover to cover every year.”

Take photos and make a list of inventory.

Keeping photos of your business on hand, as well as an itemized list of inventory and equipment, comes in handy after a disaster, LaGram said. Your insurance adjuster needs to know what your property looked like prior to the disaster to be able to adequately assess damage.

“It can help speed up the claim handling process quite a bit,” she said.

Line up your rehabilitation crew.

Because of past storm damage to the bakery, Jucker was on a first-name basis with a nearby Servpro franchise, a water and fire restoration company. Jucker calls the company each time a hurricane is heading her way to ensure Three Brothers Bakery is among the first businesses Servpro visits after the storm passes.

She recommends small business owners identify a nearby restoration company and build a relationship with its staff. That way, you would already know whom to call in the event of damage to your business.

“It’s better if you can use a company that’s local to your area,” Jucker said.

Take advantage of state resources.

Your state government might provide funds to small businesses in the case of a natural disaster. For example, the North Carolina Department of Commerce and nonprofit lenders set aside $15 million for businesses affected by Hurricane Matthew in 2016. Business owners could use the funds to repair property or purchase new equipment and fixtures. Find out if your state has previously helped disaster-affected businesses and prepare to apply for funds when they become available.

Make a communication plan for your employees.

Your plan should include how you plan to communicate with employees, customers and vendors in an emergency.

You could establish a phone tree among your staff to make sure employees pass along important messages. You could also speak to your communications vendor ahead of a storm about his or her emergency-response plan. You might be able to get the company to prioritize your business when restoring telephone or cable lines.

Before a disaster, you should compile a list of important phone numbers, including local and state emergency agencies, as well as your clients and suppliers. Your list should also include contact information for financial institutions, insurance agents, contractors and anyone else you might need to get in touch with if your business is damaged.

You might want to appoint a spokesperson to speak on behalf of your company after a disaster, especially if you have to remain closed for a few days. Local media could help you let the public know how soon you’ll be reopening your doors.

Disaster preparedness plan: the aftermath

Check on the building and your staff. When Jucker was able to reach the bakery a few days after Hurricane Harvey, she threw away all her baking ingredients that had spoiled and moved equipment out of the building to make way for repairs. The flood destroyed several items, including a wooden production table where Jucker’s father-in-law kneaded bread when he first opened the business. “It was really heartbreaking to lose that,” Jucker said.

Besides taking care the physical space, the most important thing for a business owner to do after a natural disaster is to reach out to employees, Jucker said. She checked on her staff after the hurricane and many were personally dealing with storm damage. As a business owner, you need to find a way to support your employees after a natural disaster, even if your business is closed, Jucker said.

“You have to pay them,” she said. “You have to have money in the bank literally for a rainy day.”

Document the damage and file a claim with your insurer. After a disaster, you should call your insurance company to file a claim as soon as you can, LaGram said. You should have your insurance policy on hand when reporting any losses.

If the situation is safe enough, an insurance agent might recommend that you document any losses and take photos of damaged areas, LaGram said. If you have to do any quick repairs on your own to prevent further loss, make sure you save your receipts. Your insurance company might reimburse your expenses, she said.

Just like she wanted to be the first priority for the restoration company, Jucker wanted to be one of the first businesses her insurance adjuster visited after Hurricane Harvey. She called the insurance company ahead of the storm and asked for someone to come out as soon as possible to assess the damage.

Apply for disaster relief with the SBA and other organizations. Jucker suspected the area would be declared a disaster zone in the wake of Hurricane Harvey and she prepared to take advantage of national assistance programs. She applied for disaster relief from the Small Business Administration and was approved for an SBA disaster loan $873,000.

“We are absolutely indebted to the SBA,” Jucker said. “We would be out of business if not for them.”

The SBA’s Texas Gulf Coast Small Business Development Center in Houston deploys a disaster team after any catastrophic event in the area, said Charles Capers, business adviser at the Texas Gulf Coast SBDC. Following Hurricane Harvey, the team helped business owners submit loan proposals asking to borrow money to supplement cash flow or cover extensive damage to their businesses, he said.

When applying for a disaster loan from the SBA, business owners still need to meet SBA lending criteria, said Roberta Skebo, deputy director of advising at the Texas Gulf Coast SBDC. The SBA considers a business owner’s credit, as well as the business’ past performance and cash flow, she said. The SBA needs to make sure the business can support debt payments following a disaster.

The SBA offers low-interest disaster loans to businesses in areas the organization issues a disaster declaration. You can use disaster SBA loans can be used to cover inventory expenses, personal property damage and machinery and equipment costs. The SBA might give borrowers up to 30 years to pay back a disaster loan.

Many business owners who visited the SBDC after Hurricane Harvey were unprepared and seemed surprised that they needed to have financial documents on hand. Before a storm strikes, business owners should collect all of their financial information to ease the process of applying for funding when they have little time to waste, Skebo said. When it comes to recovering from a natural disaster, preparation is key.

“People don’t plan for disasters,” Skebo said. “Then it hits, and they realize, ‘Oh my goodness, what have I not done?’”

Choosing the right insurance policy

Knowing the details of her policies helped Jucker ensure the insurance company covered as many expenses as possible after the hurricane, she said.

From an insurance perspective, small business owners are typically most interested in protecting their property, LaGram said. Property protection is commonly offered to business owners in a business owner’s policy.

“All small business owners have some sort of property and liability needs that they should strongly consider protecting,” LaGram said.

A business owners policy, or BOP, generally combines property insurance, liability protection and business interruption insurance in one policy. With this policy, your building and its contents would be protected, as would your company’s liability for any harm it causes to others from defective products or mistakes made in services provided. A BOP would also cover the loss of income resulting from a disaster that disrupts business. An annual BOP from The Hartford would start at $250, although several factors would affect the policy price, such as location and nature of the business, LaGram said.

Small business owners often don’t realize the necessity of business interruption insurance until their operations are disrupted, LaGram said. For example, if you run a restaurant and you’re dependent on a wholesaler for food supplies, any problems with the wholesaler would impact your daily operations. Business interruption coverage would help you stay open during that delay, LaGram said.

Small business owners typically don’t fully understand of their insurance policies until they need to file a claim, LaGram said. They’re either happily surprised to find out they have more coverage than they thought, or in trouble because they don’t have enough.

You can customize your BOP to make sure all your specific needs are covered, LaGram said. In addition to flood insurance, BOPs often do not cover professional liability, auto insurance, worker’s compensation or health and disability insurance. You would need separate policies for coverage beyond what the BOP includes.

Having those additional policies could make a big difference after a natural disaster, Jucker said.

“You should buy the best insurance you can afford with the lowest deductible because when there’s a disaster, you have no cash,” she said. Review this sample small business emergency preparedness plan:

  1. Read your insurance policy. Make sure you know what your insurance company will cover in the event of a disaster and purchase additional coverage to fill any gaps in coverage.
  2. Store documents in a safe location. Whether you prefer the cloud or an external hard drive, make sure your digital files and documents are backed up and safe from potential damage.
  3. Set up a communication plan. Collect important phone numbers for emergency agencies, vendors, insurance agents, financial institutions and anyone else you would need to contact in the event of a disaster. Make sure you know how to get in touch with all of your employees.
  4. Take stock of your inventory. Make a list of all your inventory and equipment and take photos of your business before a disaster strikes. Your insurance agent can better assess damage if he or she knows the prior condition of your business and its contents.
  5. Prepare for rehabilitation. Choose a local restoration company you would want to work with if your business is damaged. To place your business high on its priority list, let the company know ahead of time that you plan to call after a storm or other disaster passes.

Compare Business Loan Offers