You've got big plans for your small business. But what happens when you can't operate? You've probably got your basics covered, such as insurance for property damage due to fire and natural disasters. Yet when you can't actually perform transactions due to physical or cyber damage, and you don't have enough reserves to tide you over until you resume work, you could then be staring into the gap between a business that can survive and one that can't. The Federal Emergency Management Agency has previously estimated that about 25 percent of small businesses don't survive after a disaster.

Let's say, for example, a tornado destroys a bakery, rendering its core operations impossible to perform. Insurance may take care of the building damage, equipment replacement and cleanup, but without business continuity insurance (also called “business interruption insurance"), the owners could experience a halt to income and face a whole lot of bills they couldn't pay such as mortgage, payroll, taxes and loans. Are you able to maintain your payroll and bill payments during this absence?

Calculating Coverage

It's helpful if your business has logged enough time so that you can understand past earnings and make accurate future projections about how much you'll need to ride out a disaster—for a weekend, a month or even longer. Whatever costs aren't covered by the policy limit will need to come from elsewhere, so careful planning is key.

According to the NAIC, in order to figure out your cost and coverage limits, an insurance company will take into account your industry, number of employees, amount of coverage you require, any prior insurance claims and possibly the area of operation. A business at higher risk of interruption with a longer recovery time will pay more in premiums. An IT company, for example, will have different risks than a bakery; a real estate office may be less risky than a chemical lab.

Make a Plan

Once the initial shock of a disaster wears off, you'll need to jump back into action. Keep in mind that since your coverage may not kick in for a few days, you'll have to figure out how you will navigate the time immediately afterward and then once restoration efforts are underway.

The Department of Homeland Security's disaster-preparedness site, ready.gov, has great information for navigating the aftermath of an emergency that disrupts your business. Like any good strategy, you'll want to have steps in place and understood by all stakeholders before the time comes when you actually need to use them. The agency outlines the critical steps to take as well as worksheets and other tools that can help. Some key tips include:

• Make a business-impact study that identifies time-sensitive and non-negotiable functions and their processes, personnel and other support resources.
• Have a business continuity team in place to create a plan that covers all aspects of the operation. What can be done manually, remotely and with different resources? What partnerships and alliances can you leverage?
• Train your team with protocols for during and after the disruption incident, then test and evaluate your plan to make any necessary tweaks.

Wondering how you can best prepare for an unexpected halt in operations? Connect with a Westfield agent and we'll prepare a policy that will protect you—and your business.