Disaster Planning In the Coming Year

“I have worked with Bart Basi on transactions for over ten years, and I wanted to share his latest article. Disasters come in many ways. If you or your partner dies, gets divorced, or becomes disabled, a proper Buy-Sell-Operating Agreement referencing a business appraisal is a must.” Chris Curtin

Introduction

The fact of the matter is that businesses in this country and all over the world face a gauntlet of peril. From rising fuel prices, rising commodity prices, clients filing bankruptcy on their payables, and clients not paying to adverse credit climates, business is a challenging endeavor for any line of work.   However, there are threats, even beyond the day-to-day and year-to-year challenges.

It was just five months ago that Superstorm Sandy swept through the Northeast.  In its aftermath, approximately seventy-seven billion dollars ($77,000,000,000) of insured losses have been reported.   Now, the hurricane that was all over the news is now becoming part of our collective memory.  The legacy it leaves behind on the businesses of the Northeast is, unfortunately, ongoing.  Many businesses in the area, once they shuttered, never reopened.  In this case, as in many, business owners can feel the terrible results of natural disasters for a long time or even possibly forever.

New Statistics on Natural Disasters

In 2012 the nation experienced several natural disasters. During the past 15 years, in fact, natural disasters have increased by 40%.  In terms of human suffering, property loss, and the potential loss of business and commerce in the wake of hurricanes and other natural disasters, companies need to be prepared.

Natural disasters are a fact of life on this planet.  With earthquakes, volcanic eruptions, tidal waves, tsunamis, tornados, and such, at some point, nearly everyone and every business will be touched by a natural disaster.  The consequences can range from minimal (as in a snow or ice storm) to severe (hurricanes), to termination and even dissolution of the company, to even being dangerous to personnel.  With disaster planning, the company can and should plan to continue in at least some capacity.

 Planning for the Worst

The absolute worst thing to do in preparation for a natural disaster is to do nothing at all.  Waiting until it is broadcast on the radio or seeing a major storm system develop on the news is not the time to begin your preparation for a disaster.  At that point, communications and electrical systems may already be failing area-wide.  Critical supplies needed for business continuation may have already been sold out of stores.  Therefore, secondary protocol in people, location, and supply is necessary at all times.  Out of state suppliers and friendly competitors should be reviewed for viability in these potential circumstances.

The best thing a business owner can do to continue business during and after a disaster is to begin preparation immediately.  Talk to the people who are going to be players in the disaster plan.  Talk to secondary suppliers.  Think about where a business will be conducted in the event the primary location is not available.  Here are the basics:

1. Written Instruments and Communication

   Along with any disaster plan, written instruments a necessity.  Reducing a plan to writing is a sure sign that that plan is achievable.
   Ready.gov provides a written form which your business can use to prepare and commit a plan to paper.  Check signing authority in an alternative person is a must as well.  If the key person is not available, there must be a back-up person.

2. Security

   If you provide consumer goods such as groceries and other necessary supplies, security is a must.  Over the past decades, whenever there is a natural disaster or riot, the first thing individuals steal tends to be consumer goods stores.  While it is illegal for the population to loot, police cannot always protect those businesses and prosecute the individuals responsible for the chaos.  Reasonable measures must be taken to, if not defend the store, provide footage for law enforcement to catch the individuals responsible for the crimes there committed.

3. Finances

   Without the proper finances in place, your business could close down.  Modern-day financing relies heavily on electronic mediums such as credit card readers and telecommunications.  The bottom line, if there is no power, there is essentially no money.  The solutions to the situation may not be easy.  Two scenarios come to mind 1) either a backup generator or 2) A remote business location wherein the company business can conduct business.  A backup generator can be in the form of a portable generator, or if you have the money and infrastructure to invest, you may be able to purchase and utilize a whole building back up.

Conclusion

Additionally, a whole wealth of information is provided at ready.gov for individuals and businesses.  Just remember that alongside the business, there are individuals that they must take care of as well.  If individual employees cannot endure their situation, they will be unwilling to stay.  Ready.gov provides insight for personal readiness as well and should be followed despite any case

Every business should have a disaster plan in place to survive a natural disaster ranging from the smallest to devastating.  People face challenges, and businesses do as well.  A natural disaster mustn’t become a personal or business bankruptcy, where a continuation is possible and necessary.

Authors:

Dr. Bart A. Basi  – an expert on closely held enterprises. He is an attorney, a Certified Public Accountant, and the Senior Advisor of the Center for Financial, Legal & Tax Planning, Inc. He is a member of the American Bar Association’s Tax Committees on Closely-Held Businesses and Business Planning.

Marcus S. Renwick
Marcus Renwick is an attorney and the Director of Research and Publications with the firm.