The warning signs are seemingly everywhere.
The spring floods wreaked havoc in southeastern Connecticut. A fire or a downed power line causes a disruption for some business nearby almost every day.
Yet businesses — particularly small businesses — seem unable to find the time or the motivation to plan for the worst.
Nearly 44 percent of small firms surveyed by Travelers, the Hartford insurance giant, operate without any sort of business continuity plan and 39 percent believe they do not have the time or resources to identify and prepare for risks.
Travelers, the second largest national property casualty insurer that sells personal and business coverage through independent agents and brokers, polled 101 people at the U.S. Chamber of Commerce America’s Small Business Summit in May.
The study found that risk management and disaster recovery plans rank relatively low among priorities facing small business owners, despite the fact that 75 percent of small business that sustain a disaster are forced to close their doors within five years.
Brian Barnier, principal at ValueBridge Advisors in Stamford, is concerned about how small business owners identify, manage and prevent risk.
“If you can go for hours, days or weeks without providing goods or services to your customers, collecting revenue and paying your costs, then it’s probably not a problem,” said Barnier. “If an outage of hours, days or weeks would seriously damage your business, then it is a huge problem.”
“Time is the critical element in continuity and recovery management. How much data can you lose and still be in business? How long will a customer wait for you before they will find a new supplier? Those questions drive your need to prepare.”
Shelby Landesberg, director of business operations at Cubitt, Jacobs & Prosek (CJP) Communications in Stratford, believes every business should emphasize risk management as part of the company’s overall growth and success.
In fact, she suggested company owners should spend as much time understanding their risk prevention and management policies as they do on developing a business plan, marketing strategy or cash flow analysis.
While declining to disclose figures, Landesberg said her mid-sized consultancy spends about 1 percent of its annual revenue on risk management.
A former insurance exec, Landesberg has a few ideas about what company leaders and insurance agents should do. She thinks agents and brokers should interact with businesses about risk management coverage.
Insurance agents can also explain the differences — and cost versus value — between business interruption, disaster recovery and business continuity plans, explained Landesberg.
It’s the insurance agent’s job to engage business leaders in a discussion about what the company needs, the potential risks and how to mitigate those risks, said Landesberg.
At CJP, communications and technology play a big role, said Landesberg. If a computer system crashes, a building floods or a long-term power outage threatens productivity, company leaders want — and need — to make arrangements so they can stay on track with their deadlines.
“Small business ownership, while potentially very rewarding, also carries with it great risks,” said Marc Schmittlein, president and chief executive officer of Travelers Select Accounts.
“Owners largely focus their efforts on growing their business and, too often, they overlook risks that could stunt that growth and even shut their doors for business permanently,” said Schmittlein.
“The most successful owners are those that balance their pursuit of growth with a prudent approach to risk management,” he said.
Financial consultant Donna Childs, RiskReady LLC company founder and author, lived through the disaster scenario and knows first-hand the value of preparation.
She just launched her first company in New York — Childs Capital LLC — when terrorists slammed into the World Trade Center on Sept. 11. The Wall Street firm shut down for eight days.
Childs had a back-up copy of all the company’s client information and business data stored off-site, which enabled her and the 14 employees to work from remote locations. That was especially important since her office lacked water, electricity, landline phone and mail service for weeks after the attacks.
But the more normal day-to-day bumps of power interruptions and fires can create similar business emergencies.
“The data backup you created to safeguard against human error so you can roll back to it when an employee mistakenly deletes a file,” said Childs, “is the same one you will use if your office and computer equipment are completely flooded. All of us will experience human errors, equipment failures and power outages.”
“The best approach is to prepare for the everyday disaster,” she said. “This provides an immediate benefit against an imminent threat at a more reasonable cost. And it gradually builds resilience against more serious disasters.”
Travelers’ Schmittlein agrees.
“There is no reason for a business owner to bear risks that can be avoided,” he said. “Developing a business continuity plan is a critical success factor for business owners with a long-term view.”
