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Planning for disaster? Start with honest risk assessment

Business planning for dealing with a disaster starts with being aware of what risks you face, says Mike Womack, director of the Mississippi Emergency Management Agency (MEMA).

“When you are leasing a facility for your business, you need to very cautious of risks in the area,” Womack said. “For example, is it in a potential flood area? Not just the coastal areas but further inland, many rivers and streams throughout Mississippi are susceptible to flooding. First, understand the risk from flooding.”

While Katrina is the most infamous example of people under-estimating the risk from flood, there are many others. An excellent example is a rain event that dropped 10 to 14 inches of rain in a short period of time in the reservoir district at Jackson. People not in flood zones still received flash flood damage because of a massive amount of rain in a short period of time.

“When you have carpet and sheetrock, you can have thousands of dollars worth of damage to a structure very quickly even if you aren’t in an established flood zone,” Womack says.

Between 20% and 25% of the claims from the National Flood Insurance Program come from areas that are not identified as flood risk zones.

Taking risks

There are many other types of risks that need to be evaluated. For example, earthquake insurance might be a good idea in the northwest part of the state that is at risk from that disaster.

“With all insurance, there is a cost-benefit ratio,” Womack says. “Decide how much risk you are willing to accept or how much you are willing to pay so you don’t have to worry about the risk.”

Sometimes people who are renting or leasing are less likely to have insurance than owners.

“Many small business owners don’t have insurance,” he says. “Insurance is relatively inexpensive, and it is just a great risk if you don’t have the types of insurance you need. There are insurance companies that will provide business interruption insurance. Understand if you are affected by a disaster large enough, you can get help from the SBA, which has low-interest disaster loans for small business. That is a potential source of help. But if you have a fairly large debt load, you won’t be able to get a loan to get back in business. Have insurance so you can get back in business quickly.”

Having a plan

It is vital for businesses to have a business disaster plan. Where are your critical records? How will you reopen? Do you have provisions for emergency power generation? How will you stay in contact with employees after a disaster when cell phone and telephone land lines may be out?

“You do need to have a business plan that includes thinking of employees and how quickly you can get them back,” Womack says. “Tell them in advance of a hurricane, once the storm is over, this is the number we are at. Call me. It is important to know where employees are so you can notify them when it is time to return to work. Some big industries like casinos do a great job communicating with employees and helping them get back to work, even to the point of helping out with housing.”

Backing up

Imagine trying to run a business without access to any of your records such as contact information for clients and vendors. That happened to many businesses after Hurricanes Katrina and Rita. And it proves the importance of backing up all records for storage in an offsite location, says Loretta Worters, vice president, Insurance Information Institute.

“You do want to make sure that you have a disaster business plan in place, which includes making sure you have all your records up to date, an inventory of all your products and that you have gotten the proper insurance,” Worters says. “That is an important component. One of the big issues for business in terms of insurance in addition to getting property insurance is business interruption insurance that helps if they have to go out of business for a while. In Louisiana, a lot of businesses didn’t get back into their buildings for several months.”

Filling the gaps

Many businesses are underinsured or have major gaps in the types of coverage. Worters said particularly small businesses will take bigger risks than ever before. She advises that in addition to investing in your business, insurance helps protect that investment.

“If you have had any improvements or major purchases, key things that you want to ask an insurance agent are: ‘Do I have enough insurance to keep my business open?’” Worters asks. “‘Do I have enough to replace merchandise, my possessions and those of my employees? Do I have enough insurance to protect my assets?’ Make sure you have guaranteed or extended replacement costs. Make sure you have an inflation guard.”

Although not related to disasters, liability insurance is an important component.

If someone sues you, you can go out of business.

“So that is something to think about — making sure you have the right amount of liability insurance,” Worters says. “If you look at what the risks are, you want to make your business-disaster resistant. What are the risks inherent in my business? If one risk in terms of liability is sexual harassment or age discrimination, you want to make sure you have an employee handbook that addresses all those issues, policies that go into place to show you are taking steps to avoid liability.”

Other factors at work

Other steps to protect a business include having alarm systems and locks in place to safeguard against burglaries.

Worters also recommends taking steps to prevent employee theft because losses can be internal as well as external.

According to a National Retail Security Survey report, losses from employee theft reached a record level $32.3 billion this past year. Employee theft accounts for 46% of inventory losses, compared to only 30.6% from shoplifting. Vendor fraud accounts for another 5.8%.

“Make sure you have spoken with your employees about employee theft, and that you have appropriate measures in place within the company if you find employees are stealing,” Worters says.

Contact MBJ contributing writer Becky Gillette at bgillette@bellsouth.net.

About Becky Gillette

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