Protecting against physical disaster.

• Position: Business - Disaster recovery planning - Brief Article

As the terrorist attacks of Sept. 11 so vividly illustrated, a business can be struck by disaster at any time. While most will never be hit by terrorists, physical disasters can take many forms, including earthquakes, vandalism, floods, tornadoes, and fire. Many small businesses around the country are not prepared to recover financially from such disasters.

Unpreparedness is a major reason why 40% of all businesses hit by a natural disaster fail to reopen, and another 25% that do will close within a year, according to the Federal Emergency Management Agency. Many operate on thin margins, and any major disruption in cash flow is often fatal. Businesses that reopen often are crippled by staff turnover, increased debt, or, in the event of a widespread disaster, a regional or even national economic downturn.

While a small business cannot always prevent Mother Nature or terrorists from striking, it can prepare financially for such a catastrophe. Here are some steps to take, suggested by the Financial Planning Association, Denver, Colo.

Assess the potential risks. Some businesses need only rented office space and a few phones to be up and running, while others depend heavily on their existing structure and production facilities. Analyze what types of natural disasters you potentially face and what impact different disasters might have on your ability to continue operations. What inventory is at risk? How quickly could you find alternative office space? What would happen to your employees, customers, suppliers, and distributors?

Prepare a disaster recovery plan before a calamity hits. Draw up and practice an evacuation plan for your employees and customers. Identify the activities and resources critical to resuming operation, including a list of skeleton staff. Identify alternate locations, equipment, and suppliers you could use. Keep a list offsite of key people to contact, including disaster-relief agencies, clients, suppliers, and insurance companies. Keep insurance policies offsite, and maintain emergency cash reserves.

Reduce risks. Damage from a disaster often can be minimized or even prevented. Have an insurance company assess the potential risks and update this assessment annually. Modernizing or building to the latest codes and having alternate power backup could minimize...