Since starting their business 15 years ago, Donzelle and Cherryl Sharp had never before seen it hit so hard and in such a short period of time. Because of Hurricane Sandy, the Sharps’ company, Precision Infrastructure Inc., experienced losses of about $250,000. Projects such as a professional administrative support contract went uncompleted because of power outages caused by flooding and downed trees. The Lakewood, New Jersey company was forced to close for nearly two weeks. Worse, because it couldn’t finalize federal contracts that were in the proposal process when the super storm hit, PII Services suffered additional losses that exceeded $5 million.
“For a smaller firm like ours, it was a substantial loss,” says Donzelle Sharp, president and CEO of the professional services consultancy specializing in program management, medical support, logistics engineering, and professional staffing services. Clients include the U.S. Department of Defense, U.S. Department of Veterans Affairs, U.S. Department of Justice, and U.S. Department of Homeland Security. The 75-plus employee firm generates annual revenues from $4 million to $8 million, depending on existing contracts.
To rebound from Sandy, the firm did a cost analysis of the lost projects and is retargeting the lost business. PII Services is hoping to take full advantage of the federal dollars the Federal Emergency Management Agency has allotted to Restore the Shore, a relief effort to help homeowners and small businesses located on the Jersey Shore that were damaged by Sandy. The company did not have flood or utility interruption insurance to cover the work stoppage, but Sharp is now exploring purchasing such coverage. He notes, however, that his business sustained damage from wind and rain, not flooding.
Experts say the speed with which a business owner responds to a disaster can determine if a business survives or fails. Gail Moraton, business resiliency manager at the Insurance Institute for Business & Home Safety in Tampa, Florida, says that one out of four small businesses is forced to permanently close following a disaster. But having a business continuity plan can help small business owners keep their doors open following a business interruption.
A survey conducted for Agility Recovery Solutions indicates that smaller companies, those with 100 employees or less, spend less than one day per month preparing and maintaining continuity plans; one in five spend no time at all. Yet, a disaster preparedness and business contingency plan doesn’t have to be overly complicated, and having a viable plan will better prepare employees and management. Contingency planning is basically the identification of all critical procedures and resources necessary for the survival of the business.
Small Business Association spokeswoman Carol Chastang says that given the current economic climate, “small businesses are particularly vulnerable to economic loss after a disaster, because they don’t have the financial assets that big companies do. Larger organizations often have staff dedicated to managing business continuity and emergency planning.”
Insurance for Your Business
Having the proper business insurance coverage is also critical to business recovery. When Hurricane Katrina ransacked the Gulf Coast, Arnold Baker’s concrete and construction company got wiped out. The disaster caused Baker Ready Mix & Building Materials to lose more than $6 million in projected revenue for the six months following the 2005 storm. In addition to damaging his plant, buildings, and infrastructure, Katrina also caused the loss of more than $1 million by damaging five concrete mixer trucks, equipment, and parts. “Those initial weeks following Katrina seemed like a Mad Max movie after the big war,” says Baker, BRMB’s owner and CEO.
Unfortunately, Baker, 46, learned the hard way that his insurance was inadequate. “Since I was underinsured [liability coverage for book value, not replacement value], my insurance carrier only gave me $600,000 less a $50,000 deductible for all the trucks.” New trucks cost $160,000 to $180,000 apiece. Facing a 30% rate hike from his previous insurer following the disaster, Baker selected the Cayemitte Group in Bordentown, New Jersey, as his company’s new insurer. The Cayemitte Group showed Baker that, had he been properly insured for casualty, business interruption, and the appropriate risks, he could have been reimbursed for at least $1 million in disaster-related damage.
Baker has since purchased a business owners insurance policy that includes business interruption coverage, also known as business income insurance. Such a policy pays income to a small business in the event of a covered disaster that prevents the company from operating normally, but not if a business is shut down because of flooding or the loss of power. Flood insurance can be purchased from the National Flood Insurance Program run by the federal government. Business owners should also explore optional add-on coverage to their property insurance that specifically addresses power outages or utility services interruptions.
“The losses that could occur from being under- or improperly insured can far exceed any gains you make from running a profitable businesses,” says Baker, who was forced to bring on investors to help grow the company and cover the cost of repairing the damage. He has since bought out those investors. BRMB is back in business: With 60 employees and 40 concrete mixers, the company generates annual revenues of more than $10 million.
Chuck Miccolis, a commercial lines engineer at Institute for Business & Home Safety, says most business owners don’t fully understand the specific risks they’re exposed to at their location, and even if they do, they often underestimate it. Business owners can go to www.disastersafety.org to use a tool, Risks in Your Zip Code, that describes risks by location, sheltering business and property, and other vital data. Another property protection and recovery planning tool IBHS offers small to mid-sized businesses advises business owners about mitigating property loss, preventing data loss, and lining up backup suppliers.