All entrepreneurs must have a comprehensive disaster recovery plan and a good insurance policy. Here's how to get started.
As Hurricane Isaac beats down on the Gulf Coast, businesses are on high alert, preparing to take the brunt of the storm.
Many small businesses--but perhaps not enough--have already braced themselves for a worst-case scenario. The two most critical components of small business disaster survival, they've found, are a comprehensive backup of business data and systems, and an insurance policy that will allow them to rebuild if a business is decimated.
Louisiana small businesses are making use of the newly-created Louisiana Business Emergency Operations Center, which aims to create business stability during crises, and to help state businesses plan ahead for emergencies.
"The state government has done a good job making sure small business owners are better-prepared since Katrina," says Renee Amar, the state director for Louisiana for the National Federation of Independent Business Owners.
Still, half of all small businesses don't have a disaster recovery plan, according to a 2011 survey conducted by security firm Symantec. What's more, 43% of businesses that close following a natural disaster don't reopen, and 29% close two years later, according to federal data.
Backup Backup Backup
"Whenever large disasters, or newsworthy hurricanes like Katrina or major earthquakes hit, it serves as a wake-up notice for businesses of all size to address backup and disaster recovery processes," says Frank Scavo, president of IT consulting firm Computer Economics, in Irvine, California.
Computer networks and telephone systems are the lifeblood of any enterprise and small business owners can't afford to be without them for long.
Entrepreneurs have to make sure they back up data and systems application information locally every day, and at least once a week in another location.
There are more low-cost or no-cost small business backup options than ever before. Plenty of affordable cloud services exist today to help move critical network operations and data to remote locations. The most prominent is Amazon's S3 service, which allows businesses to offload data to Amazon's server farms around the country. Businesses with smaller file requirements can use free or low-cost options from Dropbox, Box.net, or Microsoft's Skydrive.
"An ideal situation is if you run an accounting system in the cloud and disaster affects your primary location, you can continue to access this from any place," Scavo says. Scavo adds other benefits of using the cloud for storage and backup is that most of the paid services, in addition to being co-located themselves, also have IT help desks.
In a disaster, small business owners need a plan to locate IT staff to resolve technology problems, Scavo says. That can be a real problem if a hurricane or other natural event displaces people.
Lou Rossi, chief executive of Qoncert, an IT-services firm with 30 employees in Tampa, Florida, which was also in the hurricane's wake. In charge of the No. 209 on the Inc. 500 list this year, Qoncert regularly counsels other small business owners on disaster recovery plans--and also follows his own advice.
The company's phone and computer network is centered in Winterhaven, about 50 miles inland from Tampa. Its data center is housed on one of the highest spots in the state, to resist flooding, and the storage building itself can withstand a category 4 hurricane. (Category 5 hurricanes rarely make it that far inland, Rossi says.) Qoncert backs up critical files using files storage service Egnyte, and outsources accounting and customer relationship management to Netsuite.
"If Tampa were to disappear off the face of the earth, we could still be talking in St. Augustine, Florida," Rossi says.
Disaster Insurance Is Trickier, But Imperative
Insurance is more complicated, and businesses have to be careful as they proceed with a plan. It's difficult to get one comprehensive policy. Instead, most businesses must cobble together multiple policies, which requires both time and money. After employee costs, insurance is one of the most costly items for any small business owner.
A standard business owner's policy should cost around $1,000 annually, and covers some basics like liability, business property, and loss of income due to a disaster. But private insurers in coastal areas won't cover for floods or wind damage. You'll have to insure separately for that, and if your business is based out of your home, you'll have to get some business coverage that's different from your residential plan.
Most coastal states partner with federal or state governments to insure for wind and flood damage. In Florida, for example, residents can turn to the state's Citizens Property Insurance Corporation for wind damage insurance. Similarly, coastal residents can turn to the federal National Flood Insurance Program (NFIP) for coverage. Both types of insurance can add thousands more to your yearly insurance costs.
But there are limits to the federal insurance, of about $500,000 for damage to structure and $500,000 for damages to property inside the structure, says James J. Whittle, Assistant General Counsel & Chief Claims Counsel, for the American Insurance Association.
To get extended coverage, you'll have to circle back with your private insurer, many of which do provide supplemental flood insurance.
"[Private insurers] are willing to retain more of the risk when you have federal NFIP coverage in place," Whittle says.
Erin Mitchell, founder and owner of Hew Communications, in St. Petersburg, Florida, says having a disaster recovery plan in place is a big job, but essential.
A sole proprietor, Mitchell operates out of a home office. Her residential insurance, purchased through CPIC, includes coverage for wind damage and damage to property inside the house. She purchased a separate business liability plan with a premium of about $2,000 that covers $1 million in damages. She's forgone flood insurance, because her home is on a hill and a mile away from the beach, she says.
Mitchell has also equipped her house with power packs that can charge off her car engine, three cell phones from three different telecommunications carriers to make sure she can always be in touch with clients, and she has begun to offload things like her accounting and CRM functions to software as a service providers XERO and NetSuite respectively.
She adds: "When you run a business from your home you have to know exactly what you are doing."