Hurricanes. Floods. Earthquakes. Pandemics. These natural disasters can devastate entire communities and small businesses along with them — even forcing some to close. That’s why it’s important to have a disaster plan in place before the unexpected occurs.
According to the Federal Emergency Management Agency (FEMA), 40-60 percent of small businesses close permanently after large-scale disasters, such as hurricanes, floods, extreme winter weather, earthquakes, tornadoes and wildfires. After a natural disaster, 96 percent of small businesses see revenue losses, with 35 percent experiencing losses greater than $25,000, according to the Small Business Credit Survey 2017, Report on Disaster Affected Firms by the Federal Reserve. In the first two months of the coronavirus (COVID-19) pandemic, 3.5 million U.S. small businesses will close permanently, and 7.5 million predicted they would be forced out of business over the next five months, according to an April 2020 Main Street America survey.
Although you can’t stop a natural disaster from happening, you can put a plan in place outlining what to do before, during and after such an event to minimize the impact it will have on the day-to-day operations of your business. Make sure you have the following covered prior to an emergency:
- Secure insurance to cover any losses to your business and read your insurance policy from cover to cover, so you are familiar with it when you need it
- Keep your financial documents up-to-date so that you can apply for loans immediately following a disaster in order to keep your business running
- Maintain a detailed inventory list of all of your equipment and products to have ready when filing insurance claims
- Create emergency response and crisis communication plans prior to a disaster
- Store employee and vendor contact information on the cloud so you know where to reach staff if needed
There are specific steps you can take before, during and after a potential disaster in order to protect yourself and your business. Before a disaster happens, you should create a financial “survival kit” that includes essential documents to store on a cloud-based system. During the disaster, you should activate an emergency response plan to evacuate employees. After the disaster, make a detailed assessment of the damage done to your business and determine if you will need loans to help finance repairing and rebuilding.
Before the disaster: develop a response plan
Long before a disaster hits — whether it’s an earthquake, hurricane, flood or pandemic — you should develop an emergency response plan to protect your employees, property, equipment and inventory. Train employees how to safely exit your building during an emergency. Assign an employee to be an evacuation team leader and give that person a full roster of all employees and the areas where they work. That team leader will guide employees to a designated meeting area reserved for emergencies, and help identify who is accounted for, injured or missing on the employee roster. It’s also wise to build an emergency kit with essential supplies to ride out the disaster. Equally important is having your financial and key business documents stored on the cloud or backed up in a safe location. When preparing for a potential disaster, make a detailed list of all equipment and vehicles so you can easily report them when filing a claim with your insurance company.
Create an emergency response plan
Before you are ever faced with a disaster, you should develop a plan for keeping your employees safe, and your business and equipment secure. This plan should include:
- How to alert your employees of an emergency, including easily accessible contact information
- Business evacuation plan outlining a meetup location that’s a safe distance away from your business, in case of a fire or similar disaster
- Emergency plan training for new and existing employees
- A training plan so employees can protect themselves from hazardous materials per the guidelines in the Center for Disease Control and Prevention
- Insurance company contacts for coverage and claims, as well as policy numbers and phone numbers to make calling about claims easier
- Vendor lists so you can purchase any equipment and materials you need to rebuild
Build an emergency kit
Your kit should be stored in airtight plastic bags and placed in one or two easy-to-carry containers, such as plastic bins or duffel bags. If you are directed by local government officials and law enforcement to stay where you are, whether you’re at your business or at home, it’s important to follow these shelter-in-place instructions for your safety. According to Ready.gov, an official website of the U.S. Department of Homeland Security, your emergency kit should include:
- One gallon of water per person per day for at least three days, for drinking and sanitation
- A supply of non-perishable food that will last at least three days
- Battery-powered or hand-crank radio and a National Oceanic and Atmospheric Administration (NOAA) Weather Radio with tone alert
- First aid kit
- Extra batteries
- Whistle to signal for help
- Dust masks to help filter contaminated air and plastic sheeting and duct tape so you can shelter-in-place at your business until the disaster is over
- Moist towelettes, garbage bags and plastic ties for personal sanitation
- Wrench or pliers to turn off utilities
- Manual can opener for food
- Local maps
- Cell phone with chargers and a backup battery
Create a financial documents backup kit
During a disaster, essential business documents can be damaged, lost or destroyed. By saving all of your essential financial and business documents on the cloud or an external hard drive located in a separate location from your business, you’ll ensure easy access to the files needed for loan applications following a disaster. The cloud, where you save digital files on an internet-based server, is a better option for protecting your business information and can give you the ability to access projects or documents remotely after the disaster. Be sure to have copies of your insurance policy in that same cloud. It’s smart to select a company that hosts (or saves) this information on servers located in a different city than the one where your business is located. This will ensure that in a large-scale disaster (such as a flood or hurricane), your records will not be at risk of being lost. If your information is lost, the Department of Homeland Security’s Ready.gov resource guide can help you start your information technology recovery planning process.
It's important to know how you will cover costs if a disaster hits. For many business owners, this means opening a line of credit that is reserved for post-emergency purchases. A business line of credit like this allows a business to borrow money, repay it and borrow again, up to the credit limit — similar to a credit card. Some are offered by banks and others are offered by nonbank finance companies, so research the options available to determine which is the best fit for you. If possible, it’s also a good idea to keep enough cash available in the bank to cover your business for three months in the event of an emergency. You can pay for many things with a credit card, but employees and employment taxes can only be paid with cash. It’s important to keep paying your employees so they’re there to help with the cleanup and reopening. Having this cash reserved will allow you to make sales and cover unexpected expenses if you lose power. You may also consider a mobile-device-based point of sale system that will allow you to accept payments if utilities are interrupted.
Having the right insurance is an important way to ensure you have coverage for your business in the event of a natural disaster. When researching insurers, look for those that offer an in-depth explanation of insurance premiums (the amount a business pays for an insurance policy), coverage (amount of risk or liability that is covered for an individual or entity by way of insurance services) and deductibles (the set amount that you must pay, in addition to your premium, towards a loss or liability before your insurance company will start paying on your behalf).
Look at low, medium and high options for premiums and deductibles, and closely research all of the exceptions to coverage. It might be tempting to choose the policy with the lowest premium. However, a policy with a lower monthly premium will typically have a higher deductible. A plan with a higher monthly payment and a lower deductible could be a better option because cash can be tight when your business is recovering from disaster. Before deciding on a policy, look at your financial situation and figure out what makes the most sense for your business.
There are several insurance policies that can help you rebuild and financially recover after a disaster, including business property and casualty coverage which can include business interruption insurance. This coverage is helpful if you can't carry on with business after an unexpected emergency or natural disaster. For example, if you live in a flood-prone area, you may want to get additional coverage through the National Flood Insurance Program (NFIP). This is provided by the U.S. government and covers building and contents up to $1,000,000. Unless you have flood insurance as part of your insurance coverage, you will have to pay water damages out of pocket. Also note that there’s no insurance coverage for floods under business interruption. Other disasters, such as hurricanes, fires and other natural disasters, can qualify for business interruption. Consider using an agent versus buying direct from an insurer, since agents are experts in the type of coverage you need.
Vendor and customer lists
Keep an up-to-date list of all of your employees, vendors and customers prior to a disaster so you can contact them after a disaster occurs. The vendor list should include the name of the company, type of service they provide, contact name, address, phone number, email and website, if available. This should also include potential vendors from whom you can purchase materials like side panels, windows or sheet rock for re-building your business, or the furniture and equipment you need to run your business. When you set your emergency response plan into action, you will have the contact information you need to get your business repaired and to announce that it has reopened.
During a natural disaster
Activate the emergency response plan that you’ve already created prior to any disaster so you can secure your assets and protect your staff. When you’ve been alerted to the threat of a disaster, such as a hurricane or flash flood, monitor local news and advisories to know the current recommended routes to safely leave your business before evacuating.
Employees’ life safety is the most important concern. Direct your employees to get home safely or to specific areas that community officials have designated as temporary shelters. Locate your emergency kit, which you will need if you have to ride out a storm for an unknown period of time. Plan on having supplies for at least three days.
Whether you have experienced a hurricane, flood, earthquake or pandemic, run through a disaster checklist to make sure your business is as secure as possible. FEMA offers checklists for different types of disasters, including:
After a natural disaster
Your first concern after a disaster should be you and your team’s safety, followed by addressing any damage to your business. Following the disaster, it will be important to communicate with employees, vendors and customers at the right time and with the right message. Equally important is communicating with insurance companies to file claims and restoration companies to help you rebuild. If possible, identify a local restoration company before a disaster so you can get their help as soon as possible versus trying to find one at the last minute.
Also, try to call and report your need for an insurance claim as soon as you know you’ll need one. Calling early may get you to the top of their list, meaning an adjuster should contact you sooner rather than later. This early call might speed up payments, should you qualify.
What should you do immediately after a natural disaster?
Within the first day or two of the event, make sure you:
- Locate all employees and assess employee needs
- Evaluate the damage to your business, equipment and stock
- Call in all insurance claims and store claim numbers in the cloud
- Contact the restoration company that will help you rebuild
- Procure needed supplies that may be in high demand (i.e., sheet rock, large dumpsters and mobile offices/homes)
- Rent vehicles to replace any that were lost or damaged
- Communicate your cleanup and reopening plan and work schedules to employees and your restoration company
- Let your customers know if you are open or closed, and the status of their orders
- Contact your landlord or mortgage holder to maintain open lines of communication during a pandemic
After you have addressed the most immediate needs after a disaster, there are four areas to focus on: employees, money, state of equipment and return to operations.
Employee safety and communication
Make sure all of your employees are safe and accounted for and that their personal needs are being met. For example, do they still have a home to go to and transportation to get there? Is their home a safe place where they can shelter for an extended period of time? Offer any support you are able to and consider starting an email or chat group for your employees to create a network of support. Communicating to employees the stability of your business will be critical at this time. Share your plan for rebuilding your business and confirm that their employment with your business is still safe (if this is the case).
If you have the appropriate coverage, ensure your employees know that your insurance will cover payroll so that they can be paid. If your insurance will not cover these expenses, assess whether or not you have enough cash to cover wages yourself. Employees still have to pay rent or their mortgage and other essential household expenses, and will need to know how payroll may or may not be affected. Be realistic and understand that if you are not able to pay them, they may have to look for another job out of necessity, not because they want to leave the company. Keeping employees on staff will be an important consideration for you, as losing them can jeopardize your company’s recovery post-disaster.
When communicating with employees, vendors and customers, you’ll need to cover unique messages for each group. Here is a guideline for topics to address:
- Employees: Share updates regarding safety, the status of your business and your ability to pay employees after the disaster due to a potential shutdown of operations.
- Vendors: Communicate product needs to key vendors so they can replenish stock and improve your ability to rebuild and reopen as soon as possible.
- Customers: Convey the date you expect your business to reopen, and whether it will be at your original site, in a temporary location or at a new site.
It’s wise to reassess your insurance coverage after the disaster, as your needs might have changed. You won’t be able to change your coverage for any claims related to this event, but you could alter it to be prepared for future disasters.
Evaluate the physical damage
Once it’s safe to survey the damage done to your business, document all damage with photographs and/or video for insurance claims. Make a list of all of the damaged items using the inventory list you created prior to the disaster and keep receipts for any repairs you make so you can include these details in insurance claims. Take photos or videos of the damaged equipment and vehicles and document serial numbers for each. If you have lost inventory due a natural disaster, get copies of invoices from suppliers to help reconstruct your records. Whenever possible, the invoices should date back at least one calendar year, according to the IRS.
In the case of repetitive floods, you’ll have to prove you replaced anything your insurer paid for following previous events. Manufacturing and office equipment, computers and vehicles may need to be replaced depending on the severity of the disaster. Your physical inventory may have been lost. This is an area where a significant amount of money (capital expenditures) may be needed to get your business back up and running. When sourcing replacement equipment, whether it’s new or refurbished, you might consider looking outside of the disaster area that has been affected. For example, you should be wary of buying a new vehicle in a flood damaged area since sellers may have flood-damaged inventory. Signs that a vehicle might be damaged include stained carpets, electrical problems, rust on hinges or odors in the vehicle. Additionally, in the immediate aftermath of a natural disaster prices could increase due to damaged dealer stock and interruptions in the supply chain.
Before inspecting the damage, make sure your employees are trained on how to handle hazardous materials either from your business operations or the affected community (i.e., sewage in flood waters) per the guidelines in the Center for Disease Control and Prevention. During emergencies such as hurricanes and floods, household, medical and industrial chemicals can be released into the environment.
Assess your financial situation
Despite being in a challenging and stressful circumstance, you will need to assess your financial situation following a disaster. If you need further funds to pay your employees during a temporary business shutdown, consider applying for bridge loans, which are usually short-term loans that give a quick infusion of cash, emergency funds set up for recovery from the disaster, or perhaps there are some grants that can help you. Having a good credit rating prior to the disaster could help increase your chances of being approved for a loan. Some loan options include:
- SBA Disaster: The U.S. Small Business Administration provides low-interest disaster loans up to $2 million to help businesses and homeowners recover from declared disasters. To apply for a loan, go to the SBA website to find out if you are within a declared disaster area. SBA Disaster loans can take several months to process and there is no guarantee of being approved for a loan.
- SBA 7(a): The SBA 7(a) loan program is the organization’s primary program for providing financial assistance to small businesses for loans up to $5 million. The loans can be used for working capital, expansion and equipment purchases. The terms and conditions, like the guaranty percentage and loan amount, may vary by the type of loan (i.e., 7(a) Small Loan, SBA Express, Export Express).
- LiftFund: These are small business loans for minorities, women, startups and entrepreneurs.
- Grants: Business owners who are denied for a loan might be eligible for other forms of assistance, including grants. These grants can cover medical expenses, car repairs, tools or equipment needed for work.
- Suppliers: It is worth informing your large-scale suppliers who may be based in a different location that you have experienced a significant loss and are looking for grants or financial assistance. Some may be willing to provide discounts or other financial assistance if they have the means to do so.
- Bridge Loans: Check to see if your state or a non-profit offers bridge loans to get you quick cash to pay employees.
It’s wise to reassess your insurance coverage after the disaster, as your needs might have changed. You won’t be able to change your coverage for any claims related to this event, but you could alter it to be prepared for future disasters.
Clean up and rebuild
In the aftermath, you can reach out to the vendors you identified in your emergency response plan who can provide the supplies you need to get back in business (i.e., sheetrock after a flood). You can also look for other local merchants who may have the supplies you need for your operations.
This is also a good time to access company financial information and business data that you’ve backed up on an external hard drive located in a separate location different from your business or the cloud.
After a disaster hits, contact your insurer immediately and give them information about how they can reach you if you are unable to keep your business open. Inform them of the status of damage to your business and confirm what they need before you can file your claim (i.e., photos of damage and business records showing the value of the equipment that’s been damaged or destroyed). If there are safety issues at your business that you can easily repair, document the damage and make the repairs before the insurance adjuster comes to assess the damage to your property. Don’t throw away any damaged materials or equipment before the adjuster arrives.
Stay as organized as possible when you document damages for insurance purposes. You’ll want to keep a running list of insurance claim numbers, contacts at the insurance company handling your claim and an updated list of damages to your business related to the event. This is a big task to collect all of the information that your insurance company will require for a claim. Much of the work in compiling a detailed list of inventory and equipment will have been done in advance before disaster strikes.
Let customers know you’re open for business
An important step to take after rebuilding is to let customers know you are open again. They might expect business as usual, regardless of your business’s stage of recovery after the disaster. If you can’t provide a certain level of service, it may be wise to alert customers to the change or consider waiting to reopen, as a change in service can lead them to take their business elsewhere.
As soon as you reopen your doors, consider using temporary signage to promote the fact that you’re open again and update your website and social media channels to let your customer base know that you are back in business. Visa’s Back to Business website features a small business merchant locator tool that can help you find (or your customers find your) small businesses affected by federally declared natural disasters, like hurricanes and forest fires.
Small business owners can access these resources during or after a disaster.
|U.S. Small Business Administration (SBA)||Helps you develop a plan to protect your employees, lessen the financial impact of disasters and re-open your business quickly to support economic recovery in your community. For more information or to find a Disaster Recovery Center near you, contact the SBA Customer Service Center at 800-659-2955 (TTY: 800-877-8339) or send an email to email@example.com.|
|SBA Disaster Checklist||Emergency Preparedness includes specific disaster checklists and tips for hurricanes, winter weather, earthquakes, tornadoes, wildfires, floods and cyber security.|
|Center for Disease Control and Prevention||Provides guidelines for how to deal with household, medical and industrial chemicals that can be released into the environment during an emergency such as a hurricane or flood.|
|Internal Revenue Service (IRS)||Provides guidelines for preparing for a disaster (for both taxpayers and businesses).|
|Visa: Back to Business||The small business merchant locator tool can help you find small businesses affected by federally declared natural disasters that you can support.|
|211||Call 2-1-1 from any landline or cell phone to talk to a specialist near you for help related to natural disasters or everyday needs.|
|World Health Organization (WHO)||Works worldwide to promote health, keep the world safe, and serve the vulnerable. Their goal is to ensure that a billion more people have universal health coverage, to protect a billion more people from health emergencies, and provide a further billion people with better health and well-being.|