Small businesses hit harder by hurricanes and earthquakes

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CHICAGO | Mon Aug 29, 2011 11:44am EDT (Reuters) -- For East Coast business owners shaken by this week's earthquake and bracing for Hurricane Irene's onslaught, the stats are gloomy. Twenty-five percent of small businesses hit with a disaster like a flood or an earthquake never re-open.

That's according to data from the Tampa, Florida-based Insurance Institute for Business & Home Safety, a nonprofit group that collects information on the impact of catastrophes and provides it to insurance companies.

"The reality is probably even higher because the statistics stop after two years," says Gail Moraton, IBHS's business resiliency manager. "Some businesses try and hang on from that two-to-five-year period and they end up closing a little later on."

Uninsured costs for the 5.8 shaker that was felt all along the East Coast were estimated to be less than $100 million, according to California-based risk management consultancy firm EQECAT. Irene's price tag was already expected to reach into the billions.

One way to minimize the damages and the disruptions they can cause is to develop what is known as a business continuity plan - a document that provides a structured approach to handling potential disasters, says Moraton. Among other factors, the plan looks at how much risk a business can sustain on its own and how much it needs to outsource in the form of insurance.

It also accesses the likelihood of various forms of disaster and determines strategies to minimize damage such as elevating key equipment from the floor in case of a flood.

"It identifies what can go wrong and puts in place a plan to reduce those risks," Moraton says. "The plans need to be in writing, (business owners) need to save it on different types of external devices and they need to have hard copies." More often than not, business owners will say they don't have time to put such a plan together, Moraton says.

At the very least, she advises small companies to keep a list of key employees, suppliers, vendors and other important contacts. "If you start with those four items, you've already made headway."

Business continuity plans, which address natural disasters as well as newer threats such as technology breaches and pandemics, can run anywhere from a few pages to significantly longer, depending on the complexity of the business.

Moraton says small companies can find a free guide to setting up a business continuity plan at IBHS's link www.disastersafety.org, as well as with the Red Cross and the U.S. government at ready.gov. Businesses can also hire a consultant to assemble a plan.

(This story corrects the statistic in the first paragraph from just one in four small businesses survive a disaster like a flood or an earthquake, to 25% of small businesses never re-open after being hit by a disaster like a flood or earthquake.)

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