When Good Business Plans Go Bad

CommunityTeam — Fri, 05 Jun 2009 17:14:00 GMT

Preparing for the worst will keep you functioning at your best

By Max Berry

Every entrepreneur goes into business hoping for the best, but this doesn't mean you shouldn't be prepared for the worst. Whatever business you're in, there will always be a number of things that, at any given point, could go wrong. Developing a contingency plan-or several of them-will help you survive the bad times in minimum time and at minimum cost. It will also make your business stronger as you get back on track for more good times. Here are some important steps to take when crafting your contingency plan.

Seize The Opportunity

Small business owners are optimists by nature, so sitting around preparing for a disaster that may never occur might not seem like the most valuable use of an entrepreneur's time. But doing so provides a chance to gain a deeper knowledge of your business's strengths and weaknesses. Before you even identify the risks you need to safeguard against, get in the mindset that contingency planning will, through enhanced awareness of your day-to-day operations, only strengthen and validate the confidence you already have in what you're doing. With any luck, you'll never need to put a contingency plan into effect, but it won't hurt to know that you could.

Identify The Risks

Before you can develop a contingency plan, you'll need to identify the risks to which your business is vulnerable. Depending on where your firm is located, these could include natural disasters like fires, floods, or hurricanes. If you run a tech business, you may need to develop a plan for dealing with an IT glitch or data loss. And, in this digital world, information security should always be a priority. When making your list, include all possible incidents, no matter how unlikely they are to actually occur. Also bear in mind that, while huge natural disasters and sweeping tech breakdowns snag the lion's share of the headlines, most businesses are much more likely to suffer from "quiet disasters," like subtle economic shifts and small computer glitches, or internal issues such as the loss of integral employees.

Spread The Responsibility

If your business consists of several departments, you may want to let each department come up with its own contingency plan. Your IT department will face an entirely different set of potential setbacks than will your PR guru and will naturally need to address them in vastly different ways. Designate one person from each department to oversee the contingency planning, stressing that everyone who may be affected by a disaster-which is to say everyone at your company-should have a say in how it is handled. While each department is at work crafting its own plan, it will nonetheless pay for you to oversee the processes of each, checking in regularly and maintaining a clear picture of how all the plans will work together.

Assess the Risks

Each department should keep track of each its own responsibilities-both autonomous and shared-and make a list of everything that could go wrong throughout the process of fulfilling them. Working with the other employees from the department, the contingency leader can then rate both the likelihood of each setback and the potential damage it could do to business operations. This will provide a precise framework for each department's contingency plan and help you to prioritize which potential setbacks to address first.

Structure the Recovery

When envisioning your business's recovery from a particular setback, put down a series of milestones each department will need to reach, from the immediate aftermath of the incident through the eventual return to normal operations. Determine how you will deal with the event-both internally and with external parties like clients and investors-then determine the appropriate order in which to restore business functions. Name the employees who will be key to every step of recovery and make sure that each of them knows what their responsibilities will be. If possible, try to determine the total amount of time and money needed for recovery.

Test Your Work

Once each department has finished its own plan, review them all to see how they work together. Keep an eye out for overlap between plans; if two departments plan on handling the same task, decide which is best equipped to actually take on the responsibility. Once you've gone over all the plans and made necessary changes, provide time for interdepartmental reviews. Once each plan has passed this revision process, test them by simulating those crises you are able to simulate. The people carrying out functions in the test run should, naturally, be the ones that would carry them out during a real incident.

Revise the Plan

After you've tested your plan, record what worked and what didn't and make changes accordingly. In general, remember that a good contingency plan should be updated regularly. Every time you make a major administrative or structural change in your business, adjust your plan to account for it.

Handling an Actual Crisis

Don't panic. You've got a plan.

ARE YOU COVERED?

SBOCTeam — Tue, 22 Jan 2008 15:25:00 GMT

Too many small business owners fail to purchase business insurance or do so without knowing the details of their coverage

Choosing the right insurance to protect your business from potential disaster should rank alongside selecting a location or buying office equipment as among the most critical decisions a business owner has to make. Unfortunately, too many small business owners are so intimidated by the prospect of having to wade through complicated insurance offers, coverage options, and the specter of high premiums that they put insurance decisions off, or simply follow the recommendation of their insurance broker often without understanding the details of the coverage they end up receiving.

Many small business owners, on the advice of their insurance agents, purchase a general business owners plan (BOP), which is a set of combined insurance policies designed to address the needs of similar kinds of businesses that face the same kinds of risks. Generally, BOPs include coverage for property, business interruption, and liability. While these plans offer a general range of coverage and adequately address the needs of many small businesses, it is important to make sure that they address your company's specific situation.

Property insurance will generally cover any buildings or equipment owned by your business. But it is a good idea to review your coverage from time to time to make certain new equipment has been added to the policy. "One of the biggest mistakes small business owners make in regard to their insurance coverage is obtaining a general policy without ever reading through the details of the coverage," says Dave Bowman, chairman of TTG Consultants. "They assume that if they have property insurance, that means the insurance company will pay for any damage no matter what caused it. That's a huge mistake." Make certain that your property insurance will cover any potential natural disasters that might strike. Many policies will not cover flood damage, or only do so under very specific circumstances. Does the area in which your business operates experience earthquakes? Brush fires? Hurricanes? Does the insurance policy cover damage from those specific events? What about damage resulting from accidents or vandalism or other criminal activity?

Business interruption insurance can be a life preserver for any business. Many business owners understand the value of insuring their offices and equipment, but neglect to consider what will happen to the company's finances in the event the offices or equipment become unusable. If your business's location is struck by a disaster, will your insurance provide you with temporary income while you are getting back on your feet? If not, you might end up watching your business founder financially even if your property insurance completely covers the loss of your building or equipment. "Most creditors won't care that your business is shut down for a few days or weeks to recover from a fire, flood, or other accident," Bowman says. "They expect to be paid on time because they have to pay their bills on time." Using a calculation based on your existing records, business interruption insurance will compensate you for the income lost while your business cannot make use of its property. When reviewing your policy, make sure the coverage's time limit is reasonable enough to permit you to relocate and restart operations after the loss of your property.

While BOPs offer a good range of general protection, they do not provide coverage for other specific types of insurance, including health, workers' compensation, disability, automobile, and professional liability, all of which must be covered under other policies.

Extra expense insurance is one final type of business insurance you may wish to consider. Related to business interruption insurance, extra expense insurance pays you a reasonable amount of money in excess of normal operation costs in order to speed your company's recovery.

RESOURCES
Management Help -
A library of helpful articles on evaluating and purchasing business insurance.
www.managementhelp.org/insurnce/insurnce.htm
Insurance Information Institute -
Helpful information on types of business insurance, finding the right agent, and basic coverage issues.
www.iii.org/individuals/business/
Insure.com -
An online tool that helps determine what sort of coverage your firm requires based on size and type of business.
www.info.insure.com/business/smallbiztool.cfm

Legal and Insurance

When Good Business Plans Go Bad

ARE YOU COVERED?