The Best Time for
a Business Disaster Plan?
Before the
Disaster Happens
Before 9/11 and
Hurricane Katrina, the concept of a business "disaster plan" was
envisioned mainly in terms of weather- or fire-related disasters and heavy
on the notion of evacuation.
The concept of
business risk today is so much wider – legal threats from inside and
outside the company, computer-related losses, regulatory threats, and of
course, the potential of human and facility losses due to natural
disasters or the possibility of terrorism. There really is no
one-size-fits-all approach to dealing with business risk – variables
like your business size and structure and personal issues like your age,
health and your time to retirement also factor into what should be a very
customized risk management plan.
If you are starting
a business or already own or co-own a company, the first steps in creating
a disaster plan should involve separate visits to tax, insurance and
qualified financial advisers. A CERTIFIED FINANCIAL PLANNER™
professional with specific expertise in helping business owners plan their
finances is a good place to start. Here are some general issues you should
consider in developing an overall business disaster plan:
Your plan depends in
large part on your industry and business structure.
A three-person law partnership may have a completely different risk
profile than a sole proprietor working out of his attic or the owner of a
body shop. Whether you use expensive equipment in your business or if all
you produce is valuable ideas on paper, you need to take specific steps to
protect the value of your business assets in tandem with your personal
finances. This process should start with a financial review to review how
to protect your home, your income stream and your retirement savings if
particular scenarios happen.
Develop a "what
if" list. Be as
imaginative and as negative as possible about this. Consider every
possible event that could hurt you or your business – what hurts one
automatically hurts the other. The first question – what if you died or
became disabled tomorrow? Others might refer to some specific physical
plant or computer risks as well as employee or customer risks that could
affect your future operations. A good way to make the list is to draw a
line down the middle. On the left side, list every possible risk, while
writing every possible remedy for those risks on the right side. Prepare
this list before you meet with experts.
Protect yourself
first. If you’re a good
boss, you care about your employees and your customers, and we’ll get to
them in a moment. But the first step in a business disaster plan is to
review your list of worst-case scenarios and review how you would protect
your home, your health, your retirement, your kids’ education and your
estate priorities first. If your business fails for any reason, all of
those critical necessities could be jeopardized. Make sure you have
appropriate life and disability insurance coverage in addition to a
current estate plan.
Protect your
employees second. In a
natural or man-made disaster, lives can be lost. But if you’re closed
for weeks and months, key employees may leave and that might be a greater
long-term danger to your company. Talk to your insurance company about
every physical and employment risk your staff could face in a disaster and
see what safety nets are available.
Protect your
customers third. If you
faced a lengthy business interruption, how would you serve the customers
who are depending on you? Are there specific customer service and
inventory procedures in place to keep them informed, supplied and most
important, loyal once you’re up and running again? Do you have options
for alternate office and production space as well as resources for
temporary workers?
Protect your information.
You don’t have to be some high-tech firm to understand the value of
proprietary information that keeps your company running. From proprietary
databases and research to customer credit information, this data is
critical fuel for your business. What’s to keep a burglar from stealing
your computers and taking all your valuable financial, inventory and
customer data with them? Better yet, what’s to keep a computer hacker
from stealing the information and leaving the machines behind? Data
security and backup procedures are increasingly important as
disaster-planning priorities. Get help finding the protective measures
that fit your industry.
July 2007— This column is
produced by the Financial Planning Association, the membership
organization for the financial planning community, and is provided by
McGuire & Co., LLC, a local member of the FPA.
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