Small Business

Could a Tsunami Wipe Out Your Business?

By Jay Steinfeld

Updated on: March 16, 2011 / 6:36 PM EDT / MoneyWatch

Catastrophes happen, often without warning. And when they do, everything you've ever built can come tumbling down. It's hard enough to think about all the things that MUST get done just to operate the business daily, and minimize costs. And when it comes time to spend money on things just in case, it's easier to just cross your fingers and pray.
Today's tsunami in Japan is an excellent reminder to take a closer look at disaster planning for your business.

If you're not already, here are some of the things you should be thinking about:

Inflation: How will higher prices affect your product costs, and your suppliers' costs? Do you have sufficient backup suppliers, possibly with better buying power or larger existing inventories that will minimize their cost of raw materials and supplies?

Supplier insolvency: With so many businesses eking out profits, you must consider what you'd do if any of your single-source suppliers went out of business without warning. That happened to us last year and caused a deterioration of service due to the tidal wave of irate customers wanting to know when they would receive their products. For that one, we had anticipated the disruption and had contingency plans in place, which minimized the ill will.

IT Redundancy: How robust are your redundant servers? If you outsource your Web hosting service, how quickly would you be able to be back in business if something happened to that service? What redundancies do they have? What if extreme weather forced most of your staff to work from their homes? Are you equipped to do that?

Insurance: If your business has experienced a change in growth over the last couple of years, your risks may have changed. When was the last time you brought in your insurance representatives to see if coverages are up to date?

People: Who are your key people, and what will you do if one of them leaves? Do you have good succession planning, but more important, are you doing everything possible to ensure they'd never think about leaving?

Even small- and mid-sized companies can -- and should -- do scenario planning. Try getting a team of people from your various departments and different levels within your organization and ask them what possible occurrences scare them. You should come up with as many scenarios as possible, no matter how remote they might seem (e.g. the entire Internet stops working due to terrorism). And by the way, scenario planning is not reserved for only negative eventualities. You can also create in your mind a scenario that's a positive outcome, then determine what you'd need to do in order to achieve that positive outcome.

The point is that you shouldn't wait until something happens to then think about what you'd do. Of course, you'll never predict all eventualities, but the more planning you do the more likely you'll avoid a wipe out. What other types of contingencies do you plan for and what have you found to be the best ways to have those discussions?

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Photo courtesy of Flickr, by Funkdooby