“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 5 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, the terrible results of natural disasters are often felt for a long time or even possibly forever.
New Statistics on Natural Disasters
In 2012 the nation experienced a number of natural disasters. In fact, in the past 15 years, natural disasters have increased 40%. In terms of human suffering, property loss, and the potential loss of business and commerce in the wake of the hurricanes and other natural disasters, businesses 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 absolutely 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 business will be conducted in the event the primary location is not available. The basics are presented in short form below:
1) Written Instruments and Communication
Along with any disaster plan, written instruments a necessity. Reducing a plan to writing is a sure sign that the plan is being developed in a manner which 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 looted 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 in order 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 be shut down. Modern day financing relies heavily on electronic mediums such as credit card readers and telecommunications. 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 back up generator or 2) A remote business location wherein company business can be conducted conduct business. A back up 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.
Your employees will also need financial assistance during this time period as well. Two weeks of pay can ensure that employees 1) can pay their bills and endure, and 2) come back as they will be obligated to work for the pay advance you provided them with. This assurance is a good thing to have especially when key employees may be having second thoughts about returning after a large natural disaster.
Conclusion
Additionally a whole wealth of information is provided at ready.gov for individuals and businesses. Just remember that alongside the business, individuals must be taken care of as well. If the individual employees cannot endure their own personal situation, they will be unwilling to stay. Ready.gov provides insight for personal readiness as well and should be followed despite any situation
Every business should have a disaster plan in place in order to survive a natural disaster ranging from the smallest to devastating. People face challenges and businesses do as well. It is important that a natural disaster does not become a personal or business bankruptcy, where a continuation is possible and necessary.
Authors:
Bart A. Basi
Dr. Bart A. Basi is 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.
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