When major disasters like Hurricane Gustav dominate the press, small-business owners are reminded of how quickly everything they work for can be swept away. But when hurricane season ends, how many do something about the risks? While the odds of a hurricane destroying your business are low, even if you work in a state like Florida or Louisiana, a smaller and more common disaster like a fire can destroy your business's equipment just as easily. Fortunately, steps you take to prepare for those smaller disasters can also hedge against the more damaging and rare ones, says Donna Childs, a small-business owner and author of Prepare for the Worst, Plan for the Best: Disaster Preparedness and Recovery for Small Businesses.
There are simple and cheap steps you can take that will provide basic protection against your business and its infrastructure in the case of disasters, both small and large.
Look into business interruption insurance. One of the difficulties about protecting a business from disaster in 2008 is that the nature of the ordinary business is changing. If your business does not have a store to lose to a natural disaster—say, it only exists in your home or online—does that mean there's nothing you can do to insure against damage? "People are programmed to think about insurance for physical loss, but they don't think about protection against lost revenue," says Childs. She says she's surprised at how many small businesses don't jump for business interruption insurance, which covers you for the profits you would make during a time when your business cannot operate because of some unfortunate event. A subset of business interruption insurance is service interruption insurance—policies that would cover a home-based service business if, for example, an online entrepreneur were to lose power for a period of time and be unable to work.
Business interruption insurance also works for entrepreneurs who have actual stores. Dennis Meehan has run Meehan's Office Products in Melbourne, Fla., since 1959. Melbourne was one of the towns hardest hit by rain from Hurricane Fay this August, but for Meehan it was just one of many storms he's seen over the years. Fortunately, they have never significantly affected his business, aside from deterring customers from going to the store on days of bad weather. He recently decided to forego wind insurance because of the prohibitive cost but opted to continue his business interruption insurance. He figures it's worth it, especially considering its "minimal" addition to his monthly premiums. "The reasoning behind that is the employees that are here—I don't want to lose them if something drastic happens," Meehan says of his decision to hold onto the business interruption coverage.
Waiting period? If you buy business interruption insurance, there are a few unique things to consider. Many types of coverage, such as disability insurance, often have waiting periods before you can receive money, with the benefit being a lower premium in exchange for the waiting period. The problem with waiting periods for business interruption insurance, however, is that they "introduce an element of ambiguity," says Childs. It may be difficult to plan ahead and know exactly what your business's needs would be during that waiting period—and even worse, you may not be able to make a valid claim because your service could be restored before the waiting period expires. A better option, Childs says, is to go for a fixed-dollar deductible, so you know how much you have to pay before you coverage kicks in.
Keep track of your stuff. No matter what kind of disaster insurance you choose, don't miss out on full payments for any losses because you failed to keep track of your business equipment. "A lot of times, businesses acquire things without putting them on records," says Judith Spry of BDO Seidman, which consults with corporations on insurance policies. She recommends keeping in your records pictures of equipment like computers so you can show them to the insurance company later. You can send those records to your insurance company so that they're not lost, too, in the event of a disaster.