Cash to Stay Afloat: Minimize the Effects of a Natural Disaster on Your Business

One out of four businesses that are hit with a natural disaster never opens again. Natural disasters are becoming more common. In 1975, approximately 100 natural disasters were reported, according to the International Disaster Database. By 2010, there were nearly 500 disasters reported. Simply put, if a company wants to stay in business after a disaster, it needs to have safeguards in place to mitigate the risk.

Natural DisasterResearch on global trends in disaster recovery shows that a lack of access to capital is the No. 1 factor to post-disaster business failure. It is not the capital itself that is lacking but the ability to acquire it in a timely fashion that leads to business collapse. After a catastrophe, infrastructures fall out of place. Until systems reboot, cash can be difficult to come by. Yet some bills still need to be paid. Employees and transportation fuel are two of the more important ones.

Insurance and government aid after a disaster can take weeks, months or years to come, leaving your staff and your transportation stranded. Restocking and restarting expenses may not be covered for years if left to insurance companies. To mitigate against the risk of illiquidity, create a line of credit that is only used for emergencies. Develop policies that define what constitutes a true emergency versus unexpected but normal operating needs.

Build a Diverse Customer Base

Having cash to stay open or reopen is one thing. Having a customer base to maintain an income stream is another. If your company has a consumer base that is geographically established around the business, then the revenue stream may be destroyed by the disaster as easily as the business. Under the umbrella of preserving customers, disaster protection and business expansion are very similar, relying heavily on Internet-based globalization. To keep your customers safe, move your business to the cloud.

Most of the operations and sales activities of a business can be kept safe on off-site cloud storage farms. Your company can place forms, databases and proprietary platforms on the cloud, sharing them with the sales force outside of the disaster area. One benefit of this disaster mitigation strategy is that it can be used to expand your business into a global market. First create a solid online presence with a good anchor website and engaging social media activity, then use cloud technology to allow your staff to hit the field.

Getting Your Supplies

Even if you can keep the doors open and the customers coming, it will not last long if the products cannot be delivered in a timely fashion. For manufacturing-oriented operations, preserving the supply chain after a natural disaster is mandatory. After the most recent natural disasters that hit Japan, including an earthquake, tsunami and nuclear meltdown, redeveloping manufacturing supply chains became a focus for researchers exploring disaster relief mechanisms.

One of the greatest lessons from Japan is to disperse both physical resources and information. Globalization of resources requires a balance. Having your supplier down the street may significantly reduce delivery costs, but it creates a deep risk in light of a disaster. To best protect against this risk, develop relationships with vendors that have both local and global plants. To keep your doors open, have a disaster plan that is global for all of your key operating activities.