Insurance and Media & Marketing

FAMILY BUSINESS: Indiana Square damage offers lesson in disaster planning

April 24, 2006

The incident drove home the importance of disaster planning.

When the storm struck at 10 p.m. that Sunday, who was prepared for the emergency? Employees were told not to come in the next morning, but how would they do their jobs? What files could be retrieved? Would computer systems work on Monday and later that week? What would happen to incoming and outgoing telephone and e-mail messages?

The questions and potential problems were endless.

Each owner of a family business should give serious consideration to a disaster plan. We will not have a hurricane hit central Indiana; however, we have recent examples of damage from flooding, tornadoes and, now, wind shears.

Can your physical plant be damaged or destroyed? Of course it can.

How would you respond to such a disaster? How will you notify your employees, customers and suppliers? Do you already have a remote location from which "busi ness as usual" can be conducted?

There are at least three disasters for which planning is required:

a physical disaster, such as a flood, tornado or wind shear;

a competitor's use of company products, information and processes; and

the disability or death of the business owner.

Planning for physical disasters

We each learned an important lesson this month about the vulnerability of office buildings. If this storm had hit your location and everyone was locked out the next day (and for the foreseeable future), what would happen to your business?

The answer to this question demands more than just business-continuation insurance.

If you cannot meet required delivery deadlines, will your customers seek alternative sources for your product? What will your suppliers do with material for which you have no immediate use?

I recommend that you create a written disaster plan, which can be implemented at a moment's notice in the event of a physical disaster, no matter the time of day when it hits. Create a mechanism to notify employees, suppliers, customers and others who will be affected.

The more important the customer and supplier, the more senior should be the manager who makes the notification. Assure customers and suppliers of your plans to resume operations, with a possible timetable.

Identify a remote location from which you can operate while your existing phys ical plant is repaired or replaced, and make arrangements now to use that location in an emergency.

Think through the myriad of issues that might arise and make plans now to deal effectively with each problem. Your key managers should help develop the plan.

Making these decisions "on the fly," while you are trying to deal with the emergency, is very difficult. It is much better to be proactive and plan for crisis management now, rather than to be reactive in the face of an emergency.

Planning for competitive threats

If a major competitor were suddenly to market a product that was virtually identical to your product, would you be in a position to stop this unexpected threat to your business?

Identify the products that are critical to the financial success of your company, and outline what steps must be taken to protect the integrity of them. Even if the time has passed to patent a particular product, consider protecting your work by patenting improvements to the product.

There may be confidential information and trade secrets that are vital to your business. Are you keeping this information confidential? Has its inadvertent disclosure removed any protection otherwise available to your business? What steps should you take now to protect this critical information?

If you conduct business in ways that give you a competitive advantage, look into protecting those processes against unlawful use by your competitors.

Considering these significant issues now may position your company to withstand unexpected business threats in the future.

Planning for the big one

The most significant disaster for which you must plan is the permanent disability or death of the family business owner. Most of my clients plan to work as long as they are able to do so; indeed, some of them are unable to fathom a life outside of the business.

What steps are you taking now to plan for this ultimate disaster? The threat to the lifeblood of the business grows with the approach of the inevitable.

Ask yourself: If the business owner was to suffer a debilitating stroke and became permanently disabled overnight, who is in a position to manage the business? Will the business be able to continue in the absence of strong direction from the owner?

As much as the business owner wants to believe in his own immortality, the reality is otherwise. I have seen too many families struggle to pull a business together after the unexpected death of the owner; far too many are unsuccessful, simply due to a lack of thoughtful planning by the business owner.

Consider the various disasters that might befall your business, and prepare yourself for those you can. Perhaps more importantly, plan for the survival of the business in spite of the catastrophe which, in reality, should not be completely unexpected.



Manterfield, a partner in the law firm Krieg DeVault LLP, assists family businesses with succession planning. The information in this column is not intended to be legal advice.
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