CHICAGO — With a plan in place, an unfortunate event can be an inconvenience. But if there’s no plan, that same event can turn into a business-ending disaster.
Even major incidents such as fires are survivable for a company if there’s a plan in place that allows business owners to get back up on their feet. Simply knowing what the next step is — or even the first step — is a great help in getting the wheels to recovery moving.
PREPARING FOR THE WORST
“It’s working on plans before the event happens, and there are a lot of different disasters that require very different plans,” says Kermit Engh, who owns Fashion Cleaners in Omaha, Nebraska, and is a managing partner in a consulting firm.
“There are weather disasters,” he says. “There are mechanical disasters, such as a boiler blowing up or something else that prevents you from operating. There are fires and floods, of course, but I think an even bigger one is what happens if the owner is no longer available, or if they are injured to a point where they are unable to fulfill any functions? What happens if you get hit by a bus?”
Engh also points to “non-disaster” events, such as key leadership leaving the company; new regulations from Washington; pandemics; and other factors that can also impact the business — and do greater damage if there’s no plan in place.
ENSURING INSURANCE COVERAGE
One action that owners should take is to make sure the one product they pay for but never want to use — insurance — is up to date and covers their current business situation, says Wayne Wudyka, CEO of The Huntington Company, which owns several drycleaning-related businesses.
“From the business side, the most important thing they can do is to understand their insurance policy, and make sure that coverage is in no doubt,” he says.
No single policy covers every aspect of a business, according to Wudyka, so owners need to look at their business at a granular level.
“In your policy coverages, there’s the structural, rebuilding side,” he says. “Then, there’s the equipment side. … And then there’s the bailee coverage, which covers the customers’ goods that you have in the store or plant.”
Pickup and delivery — known as “goods in transit” to insurers — is also an element of the business that needs attention.
“Sometimes, insurance will exclude goods in transit,” Wudyka says. “So having insurance and then having the right insurance are two very different things. And most agents don’t understand our business to know what we need.”
The best time to determine what your insurance covers, he says, is well before it’s needed.
“If you own your building and you want to rebuild your property, you want the coverage to cover the cost of the construction today, because construction costs are 30% or 40% more than they were a few years ago,” he says. “Most agents will just continue to renew your policy at the current levels.”
For owners who lease their buildings, it’s important to take this into account, as well.
“If you’re leasing your property, you want to have rights to rebuild,” Wudyka says. “If you have a fire in your plant, and you’re going to be down, your policy should give you 12 months for the rent coverage, because the landlord’s not going to be very patient.”
Wudyka is well-versed in this area of the business, having recently conducted his own insurance review.
“We had to split it up between multiple carriers,” he says. “Find the right agents, first and foremost, who understand our industry. And then pay the extra money for the right coverage, because if you don’t, you’re out of business.”
MAKING A PLAN
Engh believes when making a disaster recovery plan, or trying to determine weak points in the business, owners should ask themselves this question: “What if?”
“I would come up with as many different ‘what ifs’ as I could,” he says. “What if this happens? What do we do? That has to come from primarily the owner, but it also needs to involve the management team. It may also require conversations with their attorneys, their CPAs and, probably most importantly, their banker.”
Engh says he’s always banked with more than one bank because he wanted “options and versatility. Each bank has its own vibe and its own way of doing things.”
Having a banker who is responsive and aware of your business can spell the difference between recovery and closing the company, according to Engh.
“Having those relationships with bankers is crucial,” he says. “If it’s a catastrophe, it’s a matter of having an adequate line of credit set up so that you can draw on it in a moment’s notice if that’s what’s called for.”
Coming in Thursday’s conclusion: Who to call and who makes the call; lessen your chances of having a preventable disaster; and how often to review your plan
Have a question or comment? E-mail our editor Bruce Beggs at [email protected].
