When Disaster Strikes

Today, no part of the country is immune from a natural disaster. We've seen floods in the Midwest and Southeast, earthquakes in California, tornadoes throughout the Plains states, and hurricanes all along the East Coast. And this season, of course, we're witnessing the worst forest fires to strike in more than a century. While it's impossible to prevent natural disasters, you can control how well prepared you are, and thereby increase your chances of survival when disaster strikes.

Any effective disaster survival plan starts with adequate insurance. Unfortunately, insurance is one of the most misunderstood aspects of running a small business. Still, any store owner who has been through a fire or natural disaster will tell you that a thorough insurance plan is critical to a business's survival.

Here are the essential types of insurance that every gift business should have:

• Hazard and Contents Insurance. If you own the building where your store is located, you have to carry fire insurance. Whether you rent or own, you have to to carry contents coverage. Keep good records of the value of your assets in case a claim must be filed, and set your coverage level as near as possible to the value of your assets. An insurer will only replace the amount lost to fire or theft.
• Liability Insurance. This coverage protects you financially if negligence by you or one of your employees causes an injury on the premises of your store.
• Business Interruption Coverage. Also known as Business Income Coverage, this insurance provides working capital for your business in the case of a loss of facilities. Many policies include a standard clause for business interruption up to 12 months.

In addition, there are several other points to consider in maintaining a good insurance plan. First, always deal with a reputable insurance agent and an established insurance company. Make sure you are insured for the replacement value — not market value — of your used equipment. And contact your agent if you add onto your building or acquire new equipment, so that you can arrange to have additional assets covered.

You also want to set an appropriate deductible level in your policy. If you set it too low, your premiums will be higher, but a very high deductible might cause undue costs in the event of a claim. Ask your agent about a comprehensive Business Owner's Policy, which generally includes all standard business insurance, and usually saves a business owner money.

If your gift business is in an area that is susceptible to natural disasters such as floods, earthquakes, or hurricanes, you should know that the standard business insurance policy does not cover your store against these potentialities. Over the years, many gift business owners have found out the hard way that flood or earthquake insurance — which are both underwritten by the federal government — are important extras. Insurance agencies generally sell flood and earthquake insurance at a rate of 65 cents per thousand dollars of insurance.

In addition to establishing the right insurance coverage levels for your gift business, you should also take the time to develop a plan to help you work through any disasters that might strike. Here are a number of critical questions that need to be addressed:

• Could you temporarily move the store to another location?
• How would you evacuate if a disaster occurred while your store was occupied?
• Are your employees properly trained in fire prevention and extinguishing techniques? Do your employees know where the fire extinguishers are kept?
• What can be done to protect your gift business machinery and computer equipment from flood or earthquake damage?
• Who would you need to contact in the event disaster strikes? Maintain a list key of contacts somewhere off-site.

And what can you do to protect your information? Your equipment, inventory, and even your building can be replaced if you are properly insured. But if you lost all the information used to operate your gift business, you would have to start from scratch, rebuilding critical accounting and sales databases that help you operate profitably.

If you aren't already doing it, back up your computer files on a regularly. Many businesses back up files on a nightly basis automatically. With a manual system, files should be backed up at least weekly.

But backing up the files is only half the battle. These backup records should be stored off-site or in a sturdy, fireproof, and waterproof safe. You'll also need contingency hardware to run the information, in case your computer equipment is destroyed. If you are using a standard PC, then you should be okay; if your system is customized, you'll need to establish an alternate site to run and update your software.

No matter how safe you think you are, there's no guarantee a disaster won't strike your gift business, so be prepared. Take the time to review your insurance coverage. Buy flood or earthquake insurance if it is available to you. Set up a disaster survival plan. And make sure you back up your information regularly and store it in a safe place.