How to Prepare Your Business for Disaster

Natural disasters, such as hurricanes ravaging the country’s southeastern region in October, offer obvious incentives for small businesses to plan for significant disruptions. But what about small businesses in other regions where natural disasters are less prevalent?

In our last post, we covered preventing and responding to cyberattacks, which threaten companies worldwide. Did you know that according to Washington State’s Emergency Management Division (EMD), about 40 percent of businesses in Washington do not reopen after a major disaster? The EMD suggests businesses wanting to show resilience in the face of an earthquake, flood, or severe storm should have a plan, especially for the loss of critical digital services, such as payment platforms or online ordering.

This post is designed to help you define threats to your business continuity, plan for them, and remain active no matter what the unexpected brings.

Defining the Threats 

More than 1,000 earthquakes occur in Washington each year, according to the EMD. While few are felt, they occasionally cause damage, and there remains the possibility of that once-in-100-years earthquake, just as the southeast just experienced a once-in-a-thousand-year flood with Hurricane Helene.

“The Pacific Coast, Strait of Juan de Fuca, Puget Sound, and large lakes are at risk from tsunamis, trains of powerful waves that threaten people and property along shorelines,” EMD reports on its website. “Short-term loss caused by wildland fire can include the destruction of timber, wildlife habitat, scenic vistas, watersheds, and increased vulnerability to flooding. Long-term effects include smaller timber harvests, reduced access to affected recreational areas, and destruction of cultural and economic resources and community infrastructure.”

What do these different events mean for your disaster plan? Well, it depends. If your business is a local retail store or a restaurant serving the tourist economy, a wildfire could severely impact revenues. Or if it may take down utilities essential to taking payments or booking customers.

A store damaged just before our holiday shopping season may lose substantial revenues. While a few minutes of lost power may be a minor inconvenience for most businesses, one lasting for hours could create significant losses. As we saw during the COVID-10 pandemic, disruption of either production or distribution of goods sold by your business can drive prices through the roof or prevent the delivery of essential goods to your business.

You need to identify how these different events would impact you.

Conducting a Business Impact Analysis

If you’re looking for a template to identify how your business could be adversely affected by disasters, Ready.com – a site launched by the U.S. Department of Homeland Security in 2003 – provides a guide.

Once you’ve listed which disasters would affect your business, Ready.com advises you to consider seven adverse financial impacts:

• Lost sales and income
• Delayed sales or income
• Increased expenses (e.g., overtime labor, outsourcing, expediting costs, etc.)
• Regulatory fines
• Contractual penalties or loss of contractual bonuses
• Customer dissatisfaction or defection
• Delay of new business plans

From there, improving your business’s chances for continuity is about mitigating the most likely – and most impactful – adverse outcomes.

Mitigating Adverse Outcomes

When you think about disaster, you probably think about insurance. Commercial insurance should not be the last on your list of mitigation tools. (Coastal Community Bank does not provide commercial insurance to businesses.) However, you probably also noticed that premiums are up.

Commercial insurance firm BakerHopp reports policy costs are up by just over 10%. Unfortunately, property and casualty insurance are big players in that increase. In what the firm called an “atypical hard market,” four factors have combined to drive commercial insurance costs to new highs: Inflation; more significant insured losses from weather-related events across…the United States; expensive and scarce reinsurance protection, especially for property coverage, and a 15-year run of historically low interest rates – the investment of choice for insurance companies covering property and casualty.

How can you ensure you have coverage while managing the cost? This is where a continuity plan can pay off.

If you know exactly what risks you must cover and which aren’t imperative, you can potentially avoid costly one-size-fits-all commercial policies. The other side of that discussion is ensuring the commercial policy does cover the most significant adverse outcomes for you.

With insurance to protect your business’s assets, you can focus on the other elements of your continuity plan that minimize downtime and financial losses when disaster strikes.