As a business owner, you probably couldn’t help but watch the news of floods, riots and droughts hitting the U.S. this past spring. And chances are, your first thought was, “How would my business survive?”
Unfortunately, the Small Business Administration reports that 40 to 60 percent of small businesses don't survive disasters. Your challenge is to figure out how to get yourself on the right side of those numbers. That starts with a little risk assessment.
Evaluate your exposure.
Determine the likelihood and potential impact of an interruption. Remember, you don’t have to experience a major disaster to have a costly break in operations. One blip in the power grid can turn into hours of lost productivity. For some businesses, low-tech alternatives may keep employees working and product moving, but for many, pencil and paper are no longer feasible.
Moreover, problems don’t need to be nearby to throw a wrench in your operations. Anything from bad weather to civil commotion may shut down the suppliers you depend on, causing you to lose income even when you’re a safe distance from the chaos.
Calculate the cost.
At first glance, estimating the cost of a business interruption doesn’t seem too difficult. You look at what you would have earned had your business been operational plus expenses incurred, and voilà, those are your losses. In fact, if you have business interruption insurance, that’s what insurers look at to calculate your benefits.
But what about the intangibles? You also want to consider the following:
- Customer churn. Even if you get up and running quickly after a shutdown, some customers will go elsewhere to fulfill their needs. You can either accept them as lost or put money toward winning them back.
- Lost business opportunities. When cleanup and recovery consumes all your time and energy, you may miss out on sales, new partnerships and other development prospects.
- Damage to your reputation. Even if an event comes out of nowhere, the public may perceive your inability to recover as evidence of poor leadership. The perception can be even worse if the disruption is something predictable or under your control, such as a data breach.
- Decline in employee morale. Your workers may get frustrated as they wait for business to return to normal, and that frustration increases when leadership is disorganized. Poor morale is not just difficult to turn around, either. It can cause good employees to look for new job opportunities.
Even though insurance may not cover these losses, a strong response to an interruption can boost public perception and assure stakeholders that your business is stable.
You can always enlist outside help to assess your business's risks and disaster preparedness, but at the end of the day, you understand the lay of the land better than anyone. These questions can help you solidify plans to manage possible business interruptions:
- Do you have secondary suppliers?
- What is your backup energy supply?
- Are important documents secure?
- How will you access insurance documents?
- How will you contact employees and clients in the event of a disaster?
- Are computers, servers and backup data secure?
- Are employees trained in cyber security?
The cost of a business interruption can be as difficult to predict as the events that cause it, but that doesn’t mean you should take a wait-and-see approach. Develop a plan that can minimize the fallout and get your operation up and running again ASAP.