October 3, 2011 by Glenn McGillivray
A May 5 article in The Toronto Star lists six mistakes that can sink a small business: lack of passion, not knowing your market, unwillingness to change, bad money management, ineffective branding, and not asking for help.
Missing is not drafting a business continuity plan, and in this day and age such a gap can be deadly.
Extreme weather events such as the August 2009 tornado outbreak in Ontario, as well as the recent flooding in Quebec, Manitoba and Saskatchewan, and the wildfire in Slave Lake, Alberta illustrate the range of hazards that small businesses can face at virtually any time.
But natural disasters are just part of the range of hazards that can take down a small business. A burst water main, sewer backup, roof cave-in, theft, terrorist attack and urban fire make up a short sampling of others.
In Ontario alone, the Toronto Queen Street fire of February 20, 2008 took out six small businesses and the downtown Barrie fire of December 7, 2007 affected eight small businesses. The downtown Guelph fire of April 6, 2007 affected 13 small businesses and the Wasaga Beach fire of November 30, 2007 affected 12 small businesses. One Wasaga shop owner was quoted in the press saying, “Everything is gone. I mean whatever you think you had, now you find out, you know, in a second that your whole life has been disrupted.”
The importance of small business
Small businesses—sole proprietorships, microbusinesses, or ”mom and pop” operations—are key to employment and the tax base, as they represent 98% of Canadian business.
According to a semi-annual report by Industry Canada’s Small Business and Tourism Branch (Key Small Business Statistics, July 2010), there are just over one million small businesses in Canada that have employees. Between 2002 and 2006, about 130,000 new small businesses were created in Canada each year. Small businesses that have fewer than 50 employees contribute about 29% to Canada’s GDP and over the 1999 to 2009 period, small firms accounted on average for 37% of all jobs created in the private sector.
Each year, many of these small businesses are thrown off-line due to natural and man-made events, either through direct physical damage or from disruptions in the supply chain, and many never reopen due to lack of a business continuity plan. Indeed, research conducted by the Tampa-based Institute for Business and Home Safety (IBHS) indicates that one in four small businesses impacted by an event never reopens because of lack of a business continuity plan.
Medium to large businesses normally have business continuity covered because they can strike an internal committee to draft a plan, hire a continuity expert, secure the services of a third-party consultant, or do all three.
However, small businesses are especially vulnerable because few of them have the resources or knowledge to assess disaster risks and develop comprehensive mitigation and recovery plans. Many small businesses are stretched to the limit already, and few owners take the time to think of continuity and the ‘what-ifs’ that may never happen.
To help small business owners develop a business continuity plan, the Institute for Catastrophic Loss Reduction (ICLR) through an agreement with IBHS offers a free toolkit to reduce potential for loss should disaster strike and reopen quickly in case of forced closure.
Key objectives of the Open For Business Toolkit are to minimize the impacts of natural disasters on Canadian small business, minimize injuries and loss of life, minimize property damage, and protect jobs and local tax-bases.
The Toolkit focuses on two categories of protection to help a small business survive a disaster: a business continuity plan and a property protection plan.
Before drawing up a business continuity plan, your client will need to think about and gather the following information:
They will then need to identify critical business functions and a recovery location. Critical business functions are those that are crucial to the survival of the business and to resumption of business operations. Using the records from the information gathering stage, the owner will then need to select the employees, suppliers/vendors and/or key contacts needed to fulfill these business functions.
The owner will then fulfill these business functions at the chosen recovery location, whether it is an alternate site, shared space with a similar business, a home, or if the business is location dependent, at the primary place of business.
The Open For Business Toolkit also contains a checklist of items to help assure the safety and well-being of employees and others on the premises while waiting for help to arrive following a disaster.
The information recorded in this business continuity plan will help the owner recover essential business functions and inform individual employees about their responsibilities.
The next step of the program is a property protection checklist that focuses on the natural hazards of wind (hurricanes, high winds, tornado/hail), flood, earthquake, freezing weather and wildfire. It covers the building structure, the building interior, and exterior components and surroundings. Business owners should use the checklist as a guide to make decisions about where they will rent or buy property, and how they expect it to be maintained or improved/upgraded.
Choosing a team
Also, before a small business owner proceeds with the plan, he or she must decide who in the operation will be responsible for the development, maintenance, updates and testing of the plans. Also, the owner must decide if he or she would like others to work with them.
• If they are a one-person operation or have a couple of employees they may choose to do the plan themselves.
• If they have five to ten employees they may ask one or two of them to help.
• If they have more than ten employees they may want to form a team, perhaps with representatives from each department.
Others who might help with the plan are the company’s accountant, attorney, payroll company, human resources contractor or other individuals and companies that are knowledgeable about the business. If the owner decides to create a business continuity plan for each department, he or she must be sure the team meets to discuss, coordinate and reach consensus on a company-wide plan. Alternatively, the owner may designate one person to review the combined plans for consistency and duplication of content. However the owner decides to organize the team, the most important thing he or she can do is to compile the necessary information, and then they can resolve any overlaps in the plan. Also important is to choose someone knowledgeable about the building characteristics to complete the property protection checklist.
Glenn McGillivray is managing director at the Institute for Catastrophic Loss Reduction. Additional information on business continuity can be found in ICLR’s Open for Business toolkit at www.iclr.org/businesses/openforbusinesstm.html
Copyright 2011 Rogers Publishing Ltd. This article first appeared in the June 2011 edition of Canadian Insurance Top Broker magazine.
This story was originally published by Canadian Insurance Top Broker.