Business Disaster Planning

April 6, 2011

According to the Insurance Information Institute, 25% of American businesses forced to "temporarily" close due to a natural or man-made disaster are never able to reopen again.

The primary causes of these post-disaster businesses failures are preventable if planned for in advance, but practically unavoidable if no such plans are made.

If you rely upon your business as your primary source of income, I urge you not only to read on, but follow through and take action to protect the investment you have made in your business and financial independence.

PROTECT YOUR VALUABLE DATA

Whether your data consists of technical information documenting manufacturing specifications, client and vendor lists, or payroll and accounting files, the cost of reconstructing the data of your business can easily exceed the resources of your business. Loss of this information to fire or flood is one possibility, but man-made disasters such as hard drive failure, cyber attack, or computer viruses may also destroy your data.

Backing up your valuable data and keeping the backup in an offsite location is simple and inexpensive. At a minimum, I suggest you backup your data weekly and remove the backup to a location separate from where the original is stored. This can be your home or a safe deposit box at your business bank.

The best practice is to engage an online backup business, such as carbonite.com, idrive.com, mimedia.com, or mozy.com. For a few dollars a month per computer, these services will automatically backup your files to remote servers. As an added benefit, some of these services also allow online access to the files, similar to cloud computing services.

BUY ENOUGH INSURANCE COVERAGE TO REBUILD

Make an appointment to meet with your insurance provider to review your business coverage. Most business owners focus on the coverage amount of their business office policy. While liability protection is important, tracking the value of your business assets, like computers, machine equipment, and inventory, and making sure your insurance coverage grows as the value of your business assets grow is vital to recovering should your business assets be destroyed.

Another consideration is how you will pay your creditors, employees, and provide for your own income while your doors are closed. Having insurance coverage to buy new office machines and inventory is great, but surviving long enough to take advantage of that coverage is equally important. Business interruption insurance can be used to replace the income your business is missing while you are rebuilding, keeping your vendors at bay, your employees employed, and providing for you and your family while you work to get back into business again.

PREPARE FOR THE LOSS OF PERSONNEL

Sometimes disasters do not come by fire or flood, but as plane crashes, car accidents, or even severe illnesses. While finding a new waitress or cashier might be simple, replacing the knowledge and experience of your business partner might be difficult if not impossible. This is especially true when business partners bring different skill sets to the business, such as an expert in software engineering partnered with a business expert.

If something were to happen to the software expert, will the business expert be able to run the business alone? If half the business profits are still being paid to the software expert or his or her heirs, how can the business expert afford to pay another software engineer to take his or her place?

Buy-sell agreements among business owners are an extremely inexpensive way to establish a succession plan for ownership of a partnership, LLC, or corporation. These agreements may even be funded using inexpensive term life and term disability buyout insurance policies to ensure a disabled business partner, or the heirs of a deceased business partner, receives much needed money in a time of loss while also ensuring the remaining business partner or partners have capital available to replace the expertise lost to the business by the death or disability.

CONCLUSION

Planning for the unexpected is not difficult, and compared to losing your primary source of income, is also not expensive. If you protect your home and car against disasters, it only makes sense to afford similar protection to the income which pays for your home and car too.

Warm Regards,

Michael J. Leonard, Esq.
Attorney at Law
San Diego Corporate Law

Find me on Facebook: http://www.facebook.com/SanDiegoCorporateLaw