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Storm Warning

Katrina taught business a few lessons.

Disaster can strike a material handling company in many ways, from tornadoes, hurricanes, earthquakes, lightning strikes and blizzards to broken water mains, fire and smoke damage, mold damage and more. Whether the cause is Mother Nature or human error, disasters can jeopardize a business’s staff and its assets.

Forty percent of all businesses hit by a disaster close within five years, so it is imperative that companies not be caught off-guard if they want to sustain business and/or bounce back to operation as quickly as possible. Recent calamities—Hurricanes Katrina, Rita and Wilma, the Pakistani earthquakes, fall tornadoes in the Midwest—further illustrate the importance of preparedness. Of course, the natural disasters themselves cannot be prevented, but inability to rebound can be avoided. Some key considerations for creating disaster and emergency recovery plans are outlined below. The individual plan elements will depend on the specific natures of both the disaster and the business, but these are some areas to address.

Know your vulnerabilities — The critical first step is to analyze the potential risks to your business, including all geographic and climatic hazards that could endanger the building. Are hurricanes, flash floods, tornadoes, earthquakes, forest fires or even volcanic eruption frequent in the area? Examine the building and surrounding terrain to determine if it is on a slope or if the basement is above flood level. Consider other possible disasters like power outages, sprinkler discharges, fuel or water supply failures, chemical spills, arson or terrorist threats. Nearby construction projects or hazardous material shipping routes also expose your business to damage.

Eliminate everyday risks — Geography and climate cannot be changed, of course, but some risks can be mitigated with a little foresight. The simplest measure to undertake is instituting a regular program of building inspection and maintenance to reduce common problems such as broken pipes, defective heating or cooling devices, faulty electrical wiring, clogged drains or other problems that can cause trouble. Keep a log of these events. Complete knowledge of your building will allow for quicker, more affordable repairs.

Inventory your facility — One of the most important safeguards to have is a complete list of all your possessions in the event that your building is damaged or destroyed. An inventory will help you get a fair insurance payment, and it shows proof when you want to deduct your losses on your tax return. Document every room and its contents with a video camera, and be sure to include the building exterior. Keep track of the make, model number, serial number and purchase price of assets for the insurance company and the IRS.

Changes Since Katrina
  • Since the carnage caused by Katrina, many companies already have altered their policies. In the days following the disaster, sales of satellite phones were up 30 percent. Satellite phones are pricey, at more than $1,000 apiece, but are much more reliable than standard land lines and cell phones during times of crisis.
  • One result of Katrina was the unexpected looting, a costly vulnerability that must be anticipated.
  • On September 23, President Bush signed the $6.1 billion Katrina Emergency Tax Relief Act of 2005. Provisions include tax credits for employee retention and incentives for making charitable contributions. Discussion continues in Congress about a second tax bill, HR4197, which offers assistance to businesses affected by the disasters.

Ensure that you’re insured — Damage to buildings and equipment are not the only risks a business may face following a disaster. Expenses like rent, leases and loans will need to be paid even if the business is not operational. A company also can be held responsible for anything held on site for others (i.e., machines brought in for repair). Make sure that you have appropriate amounts of property, rental, life, auto and disability insurance. Extra insurance for things like earthquakes or floods that aren’t covered by traditional policies may also be required. Know the difference between full and partial coverage in order to understand exactly what your insurance entails. Read the entire policy. Important details can be found throughout the text of the document. Give special attention to what risks are excluded. Be sure your business owner policy includes insurance for business interruption and for extra expenses—costs beyond normal operating expenditures necessary to keep the business afloat during inactivity.

Create a list of emergency contacts — The contact list should include state, local and federal emergency phone numbers, as well as any available phone numbers, addresses and e-mail addresses for employees, corporate officers, major clients, suppliers, contractors, financial institutions, insurance agents, radio stations, newspapers and any other individuals or businesses that may need to be notified. Store the list off-site. Also, be sure employees have a place they can call to get information and alert the company, family and friends that they are safe.

Protect critical data and records — Make duplicates of all of your company’s vital records, account numbers, tax returns, computer data, video tapes, contact lists, accounting data, other documents and other media that are essential to your business operations. Do not forget to backup your Web site. Keep all your important paperwork in one safe place, preferably a waterproof, fireproof box. Store it off site! Ideally, the storage facility should be located in a different town. A small amount of records or data can be stored in a safe-deposit box or at a relative’s or associate’s home or office.

Disaster-proof your finances — Open an easy-access emergency savings account with enough funds to cover at least three months of expenses. Obtain a credit card designated solely for emergency use. Be sure it has a large enough credit line to withstand being shut down for a few months. It also may be beneficial to have a nearby stash of cash or traveler’s checks. Keep in mind that creditors will not automatically defer payments, so they must be alerted to the situation. Be particularly mindful about automatic withdrawals. Call the credit card company, utility company, mortgage lender and other collectors to ask for extensions. Most will agree once they are aware of what has happened.

Locate alternate facilities for emergency use — The Institute for Business and Home Safety says that 25 percent of small businesses that are forced to close because of natural disasters never reopen. At the very least, it may take a few weeks to restore the facility to standard operation. Even customers who are sympathetic to your condition eventually will be forced to look to other suppliers if their needs aren’t being addressed. To avoid such an occurrence, consider alternate facilities to use, such as companies that offer short-term rental of office or warehouse space, friends or neighbors with spare rooms, or even employees’ homes.

Keep batteries charged — Notebook computers and cellular phone connections can help maintain contact with associates during some disasters. Phone (and cellular) service often is restored before electricity. Keep one copy of the contact list on the notebook computer so it can be accessed off site.

Develop emergency procedures — The three most important traits of an effective plan are comprehensiveness, simplicity and flexibility. It must be exhaustive enough to address all types of emergencies that the company is likely to encounter, with plans for both immediate response and long-term salvage and recovery efforts. The plan must be easy to follow because people often struggle to think clearly in times of panic. Precise instructions and training are critical. It is impossible to anticipate every detail, so the plan should provide basic instructions while allowing for on-the-spot creativity.

Keep employees apprised — All employees must know what steps to take during a disaster. Consider things such as valves that must be closed to prevent explosion, backup power supplies, location of first-aid supplies and methods for communicating instructions. Identify escape routes. Designate a checkpoint or meeting place to which all employees should go if there is an emergency that only affects your facility. This will ease the process of accounting for everyone. Staff members should be made aware of their responsibilities, and regular drills should be conducted. Keep several copies of the plan, each of which should indicate where other copies may be found.

Update regularly — All your vigilance will be for naught if the information is outdated, if you cannot find it or if your staff is unaware of it. Names, addresses, phone numbers and personnel change constantly, as do equipment and products.

This may seem like an overwhelming process, but no company is vulnerable to all disasters. Decide which ones are most likely and plan for those. Then determine what types of losses would be most damaging and take steps to prevent them. For instance, how long would it take you to get back in business if accounts receivable files were lost? Customer contact lists? Once you identify these critical elements, write an emergency recovery plan that details the priority order in which your operations should be restored and where the resources to restore each business function can be found. The plan can always be expanded to include other scenarios.

In today’s highly competitive marketplace, even one unexpected day off can be costly. Preparation is the only prevention.

By The Numbers
A poll of companies with 1 to 249 employees conducted by the National Federation of Independent Business (NFIB) presents some facts on disaster plans.
Within the last three years, nearly 1 in 3 U.S. small businesses has been forced to shut its doors for at least 24 hours due to a natural disaster.
Only 38% of small-business owners report having an emergency-preparedness plan ready.
Power failures of at least 24 hours affected 21% of the businesses. Only 20% had backup generators at the principal place of business.
Computer viruses were cited by 34%. Of those companies, 29% had to completely replace their computer infrastructure.
The Small Business Technology Institute surveyed 1,024 small businesses with the following results.
Many small businesses lack sufficient security controls over basic systems such as e-mail (18% are not secured) and wireless networks (60% are not secured). Most small businesses, 74%, perform no formal information security planning to counter these threats.
The majority of small businesses, 56%, have experienced at least one security incident in the past year, citing computer viruses, spyware and other mailware as the main cause. Yet only 30% have increased spending on information security solutions and 41% allocate a specific budget for these solutions.
70% of small material handling businesses feel information security product materials could be improved to help them make more informed purchasing decisions and small businesses continue to call for products that meet specific small business requirements.

Material Handling Equipment Distributors Association

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