How prepared is your business for a state of emergency?
September 12, 2017
By Martha Sullivan, CPA, CVA/ABV, CM&AA, CEPA
Partner, Succession Planning Practice Leader
Martha leads HK’s succession and exit planning services division and is a regular contributor to Wisconsin’s InBusiness digital magazine.
There are more places under states of emergency than I can ever recall.
Texas, Florida, South Carolina, and Georgia are all dealing with hurricanes and their aftermath. Montana, Washington, Oregon, Idaho, and California are dealing with devastating and rampant wildfires. Montana’s fires, for example, are so fueled by winds that they may not go out until the snow flies! Mexico is reeling from an earthquake. Mother Nature’s wake-up call is this — she is in control.
Our hearts go out to those who are in harm’s way. They face immense loss. The images of the devastation are terrifying. Our greatest fears are in our face — loss of our loved ones, loss of homes, loss of our business/employer and livelihood.
So, here’s a question: How ready is your business to deal with a major disaster?
Answers vary based on:
- How severe is the disaster and damage?
- Your perception of the risk — how probable is it that disaster will occur?
- How willing you are to invest to protect the business? Do you have a disaster recovery plan? How adequate is your insurance?
Insurance is the most obvious form of protection, including property, business continuity, life, and key-person policies. Policies provide the money to restore the business, at least partially, and are relatively easy to put in place. Disaster recovery plans (DRP) are also an obvious protection. DRPs, however, take more time to create, implement, and test than getting the right insurance in place.
Interestingly, there are a lot of parallels between DRPs and an owner’s transition plan. Common characteristics include:
- Easy to delay: A common attitude is, “I know it’s important, but it’s not a priority right now.” And then suddenly it is.
- Focus on sustainability: As a business owner, your livelihood depends on a steady flow of cash from profits, distributions, and a return on investment. Whether building wealth and value in your business or planning for disaster recovery, preparation is key. For example, how quickly can you be up and running in the aftermath of the raging storm? How fast can you restore sustainable operations, market opportunities, and cash flow? Are your operations and plans flexible to adapt to different situations? In short, are you and your team ready to keep things going?
- Taking care of each other: Your DRP defines how you’ll take care of the people and relationships that matter the most in your business — your customers, employees, and suppliers — in times of crisis. You’ll think about these same relationships as you prioritize what’s important as you review your exit alternatives.
- Takes time to prepare and test: Both types of plans explore different alternatives and scenarios for running the business in the future. For each situation, what systems and processes would be needed? What information, tools, and training needs to be safeguarded, transferred, and ready to access when needed? Are the right people in place to get the job done? Have assumptions been tested? Will the plan work?
- Needs to be communicated: You might have ideas as to what you would do in the face of a disaster, but does everyone else? Has there been enough communication for an active, coordinated, and swift response? If the answer is no, or you don’t have a plan, it’s guaranteed chaos. The probability of successful recovery declines rapidly. Surveys through the Exit Planning Institute show that nearly 40% of business owners have a plan for their exit but they haven’t communicated it to anyone. That’s not a plan; it’s an idea. Another 49% admit they have no plan. That is a disaster waiting to happen.
- Plans support each other: Your DRP demonstrates that you and your team understand and have documented your key systems. Together, you’ve built back-up systems and infrastructure. You set priorities to sustain operations and cash flow. If you’ve started to prepare your business to transition to its next owner, you’re doing much of the same work. Both plans set the stage for knowledge transfer, action, and continuing operations.
The Midwest is insulated from threats like hurricanes and wildfires. However, that doesn’t mean Mother Nature doesn’t have other tricks up her sleeve for us. Weather or other factors can unexpectedly cause your business considerable distress and threaten its sustainability at any time.
Mother Nature is sending us a wake-up call. Heed the warning. Don’t put disaster or transition planning off. You never know what trouble the wind will blow your way. Take this as a call to action and prepare.
This post was originally published at www.ibmadison.com on Sept. 12, 2017.