How to Recover from a Disaster

The actions you take can determine whether you stay in business.

Column by Barbara Weltman

Disasters, whether it’s a hurricane or fire, are devastating events — both emotionally and financially — that are not easily overcome. Don't expect that things will ever get back to normal; they rarely do following a major disaster, according to the Public Entity Risk Institute. But you can take the following steps to see that your business continues to operate.

Execute your business continuity plan

If you've anticipated a possible disaster by creating a disaster continuity plan, now is the time to put your plan into action (hopefully you have a copy of the written plan offsite that you can access).

Assess your options. Don't assume that re–opening your business is the only option. As difficult as the decision may be, you may prefer to simply close up shop and start over at another time or at another location, retire or work for someone else rather than sinking money into an enterprise that may not succeed in the long run. This decision is based on your personal situation (e.g., your age, the pre–disaster health of your business) as well as what may have happened to your customers as a result of the disaster. The New York Times recently reported that Ruth's Chris Steakhouse, the popular restaurant chain, decided to relocate its headquarters from New Orleans to Orlando, FL after concluding there were too many challenges facing the company if it stayed in Louisiana.

Idea: Disaster can be a life–changing event. Take time to make the right decision about your future based on rational information rather than emotion. Senior executives at Ruth's Chris Steakhouse met soon after the levees broke and explored all options before a final decision was made.

Re–open your doors. If you want to stay in business, clean up your existing space or, if necessary, find an alternative location at least temporarily. Recover your computer data from off–site storage facilities. Contact staff to alert them to time and/or location changes for your business.

Make insurance claims. Contact your insurance company immediately. It will assist you in submitting a claim for damages. Where necessary, submit claims for property damage to pay for repairs as well as claims under a business interruption policy to obtain money to pay expenses, such as rent at an alternative site.

Handle your stress. Don't underestimate the personal toll that a disaster can take on you and your staff. Recognize the problem and, if necessary, seek professional help.

Interim actions

If you do not have a business continuity plan and disaster strikes, take immediate action to continue your business activities.

Safety. Check the conditions of your facilities to make sure they are safe for your staff and customers before re–commencing operations. Where necessary, have a building inspector look things over. If there are safety concerns that cannot be remedied immediately, seek an alternative place to operate temporarily.

Assess damages. In order to submit an insurance claim or seek government loans or assistance, you need to document your losses. Create a checklist of the damages you’ve sustained, including loss of inventory, equipment, etc.

Clean up. In most cases, damage from storms and fires may be readily cleaned up. Use a professional cleaning service (the cost may be covered by your insurance).

Restore services. In order to operate from your usual location, make sure that power and phone service is restored. Where applicable, also see that sprinkler systems are operational.

Make repairs. Temporary repairs can be sufficient to put you back in operation if all that is needed is a new window or a patch in the roof.

Check tax filing extensions. The IRS may grant additional time to file certain returns; no extensions are possible for information returns (e.g., Forms 1099). It can also waive interest and penalties on income taxes, but not on payroll taxes. To learn about federal tax relief, go to www.irs.gov and click on "The Newsroom." The IRS has posted several news releases specifically related to Hurricane Katrina that are good sources of information for Gulf coast businesses impacted by the storm.

Long-term actions

Where damage is substantial and insurance does not adequately cover your loss, you may require additional funding to restore your business to its pre–disaster condition. The American Red Cross and other private organizations usually do not provide assistance to small businesses, but government agencies may help.

Obtain an SBA loan. The Small Business Administration provides two types of assistance:

• Physical disaster loans to repair or replace damaged property, including inventory, machinery and equipment. Funds cannot be used to expand or upgrade a business unless state or local authorities require such changes. Keep detailed records of how funds are spent. The maximum loan is $1.5 million, which includes debris removal. Loans of $10,000 do not require collateral; larger loans do. Approval is usually given within one to three weeks of your application.
• Economic injury disaster loans to provide capital when a disaster renders a business unable to meet its obligations, and to pay its ordinary and necessary operating expenses, regardless of any physical damage.

To apply for an SBA disaster loan, go to www.sba.gov and click on "Disaster Recovery."

FEMA assistance. While the Federal Emergency Management Agency (FEMA) has come under criticism of late, it does offer assistance to businesses trying to recoup after a disaster. If your losses occurred in a federally–declared disaster area, you may be eligible for help — check FEMA's Web site, www.fema.gov, for the latest information. The SBA is the main source of disaster recovery funding, but FEMA can direct you to other resources to supplement your insurance recovery and SBA assistance.

Review insurance coverage. How well did your existing policies protect you? Where necessary adjust your coverage for greater protection against future disaster.

Create a new disaster recovery plan. Lightning usually doesn’t strike twice in the same place, but just in case it does, be prepared.

Facts on disasters and small business

• Almost 10% of small business bankruptcies result from disasters and other calamities (U.S. Small Business Contract #SBA–95–0403 Paper, Financial Difficulties of Small Businesses and Reasons for Their Failure).
• 38% of small businesses have a disaster preparedness plan (NFIB Poll).
• 30% of small businesses have been forced to shut their doors at least temporarily within the past three years because of a disaster (NFIB Poll).
• 40% of small businesses never reopen following a flood, tornado, earthquake or other disaster (American Red Cross).

Barbara Weltman is a nationally recognized small business authority. A top–selling author, she has appeared in many prestigious media outlets including The Wall Street Journal, Entrepreneur, Inc.com, CNN, CNBC, Bloomberg TV and WNBC–TV. Ms. Weltman is a columnist for Staples.com and the Hudson Valley Business Journal and is a regular contributor to Boardroom's Bottom Line/Personal. She is the publisher/editor of "Barbara Weltman's Big Ideas for Small Business®," a newsletter on issues and trends that concern entrepreneurs. Ms. Weltman's Web site is www.barbaraweltman.com.

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