Plan for earthquakes, fires and floods to stay afloat

KYLE Brechtel thought he’d done everything necessary to protect his New Orleans sandwich shops to withstand a disaster.

He bought insurance, backed up his computer files and had a long relationship with his bank. Then Hurricane Katrina pummeled the city in August 2005 and Brechtel suddenly realized he could have done even more.

The wrong mix of insurance forced him to pay $60,000 in out-of-pocket repairs that Brechtel could have avoided.

“You’re never fully prepared but be as prepared as you can be,” Brechtel said.

That’s good advice, especially for small companies in Southern California, where there’s always the threat of earthquakes and, in some regions, fires and mudslides, which can upend a business.

“There are some areas of the country where, statistically speaking, it’s more important to have [a disaster plan] because you’re more vulnerable,” said William Dennis, a senior research fellow at the National Federation of Independent Business.

Earthquakes make Southern California a prime example, Dennis said.

Nationwide, only 38% of small businesses have emergency plans, according to a 2004 federation survey.

At least one-quarter of businesses that close because of a disaster never reopen, according to the Institute for Business & Home Safety, a Tampa, Fla.-based insurance trade group.

Developing a basic plan increases the odds of surviving a disaster.

Businesses should start with having ready access to contact information for employees, customers and suppliers. Owners should keep spare cash on hand and have a line of credit in place. And companies should back up records, preferably to an off-site location away from a main office or business.

“It seems like common sense, but it takes an effort on the part of the small-business owner to step back and do it,” said Barbara Weltman, coauthor of “Small Business Survival Book” (John Wiley & Sons, 2006).

Start with insurance.

Experts recommend buying business-interruption insurance, which reimburses owners for lost profits and continuing expenses when their operations are shut down.

It covers rent, salaries, loan payments and insurance premiums. Many policies include “extra-expense” provisions that cover disaster-related costs such as added rental costs for temporary quarters while a primary store is refurbished, said Scott Simmonds, a fee-only insurance consultant in Saco, Maine.

“It’s what keeps small-business owners from going out of business after a disaster,” said Simmonds, who advises companies nationwide.

Small businesses often buy so-called business-owners coverage that blends property, liability and business interruption into a single policy, Simmonds said. But owners should make sure that coverage is tailored to their needs, he said.

For example, companies that have customers’ property on their premises, such as a dry cleaner or a computer-repair shop, need extra coverage in case of fire or other damage, Simmonds said.

Remember, business-interruption policies don’t cover earthquakes.

Small businesses need special policies for quakes -- that is, if they can afford them or even find them.

After incurring hefty payouts for Katrina and other disasters, insurers have pulled back in the last year from commercial quake insurance in California and boosted rates dramatically, said Scott Hauge, head of Cal Insurance & Associates Inc., a San Francisco insurance brokerage specializing in small-business clients.

One popular small-business program imposed a moratorium last year on new policies in 10 California counties, including Los Angeles.

One of Hauge’s clients, a commercial landlord in the Central Valley, used to pay $78,000 for $28 million of coverage with a 10% deductible. When it renewed last year, all the company could get was $10 million in coverage with a 20% deductible for $106,500, he said.

A bakery in the Bay Area that was required by its landlord to have quake insurance got a quote of about $35,000 when it began pricing coverage in April 2006, Hauge said. By the time it bought coverage in December, the price had doubled.

Quake insurance has never been popular with California small businesses, Hauge said. Even before rates surged recently, fewer than 10% of small companies bought coverage, he estimated.

Hauge counsels some clients to put their money into retrofitting buildings to withstand quakes rather than buying quake policies.

Regardless of the type of insurance coverage, Brechtel learned the hard way to pay attention to the fine print.

He thought his flood policy would cover damage to the walk-in cooler and expensive shelving in his Metairie, La., store.

But he classified them as equipment, and his insurer viewed them as part of the building. Thus, Brechtel had too much coverage of contents and not enough for property, he said.

“We were in a much better position than many people, but we could have been in a better position if we would have spent a little bit more time paying attention to the details,” he said.

Beyond insurance, start with a few basics, experts say.

As at home, have staples such as flashlights, batteries, routine medical supplies and extra drinking water.

To protect against fire -- one of the most common threats to small businesses -- consider installing fireproofing, fire alarms and sprinkler systems. Have a fire extinguisher handy and know where the nearest staircases are. Regularly check electrical systems for faulty wiring.

Communication is key to any disaster plan.

Have phone and e-mail contacts for employees, customers and suppliers. Keep copies in as many places as possible, including in a home computer, and, if possible, have the information programmed into a cellphone.

Consider creating a phone chain in which employees call one another to assess safety or other needs. Some companies set numbers for workers to call for instructions or to let the company know they’re safe.

Touch base with customers -- to let them know you’re still in business -- and with suppliers -- to make sure you have the materials to produce your products.

Have “contingencies for just about everything, for your suppliers, for your warehousing, for your shippers, for every part of your supply chain,” Weltman said.

walter.hamilton@latimes.com