For any business, large or small, the worst thing that can happen is an unexpected event that stops you trading or drives your customers away. Some 80% of companies that suffer a major disaster and don’t have any form of contingency planning go into liquidation within 18 months. This guide helps you think through the issues so that, should disaster strike, you will be more likely to survive.

Typical disasters range from fires or floods to the death of an important staff member; from an important supplier going out of business to an epidemic. You can insure against some hazards, but that won’t cover all the costs, or all the events.For example, an outbreak of foot-and-mouth disease is particularly serious because it hits such an enormous range of businesses. Restaurants in no-go areas can’t open so they and their suppliers suffer. Agricultural shows throughout the country are cancelled so all the businesses that operate show stands lose this outlet for a season. Hotels and guest houses, tourist attractions and guides all suffer, not because their customers can’t get to them, but because people think the whole of the British countryside is inaccessible.

It doesn’t have to be a major external event that does the damage either. For example, a small printer, operating with just one printing press, suffered a machine failure in mid-autumn. It took a week before a technician came and announced that parts had to be ordered from Japan. It was a further two weeks before the parts arrived and another week before the technician was able to fit them. By this time, the delivery times for all the pre-Christmas orders had come and gone, and so had the customers for those orders. By March, the business had closed and the owner was facing bankruptcy – all for the lack of a contingency plan, which could have included the use of someone else’s machinery at weekends and overnight.

How to make sure it doesn’t happen to you

Start by accepting that disaster can strike anyone, any time, any place. There are eight simple steps to take:

• List everything that you think could possibly go wrong, then show your list to someone outside your business who you trust, and ask if they can think of anything you’ve missed.
• Decide who will be affected in each eventuality and how.
• Review your insurance to ensure that you are adequately covered for all the insurable risks.
• Create contingency plans for dealing with all the major risks. Many insurance companies will reduce your premiums if you have such a contingency plan in place.
• Keep copies of these off-site, along with useful numbers and details of your insurance policies, in case your premises burn down!
• Test the plans with dummy runs. Involve all your staff, just as you do with a simple fire drill.
• Develop a follow-up plan to recoup your business’s good name, if this has been affected, and also your customers, who may have had to go elsewhere in the meantime.
• Revisit your plans at least once a year and update them if necessary.

Things that might go wrong

The experts say there are three routes into a crisis:

• A major disaster which immediately prevents normal business.
• A slide or gradually worsening situation which makes it more and more difficult to operate normally.
• A swarm of small events happening simultaneously and overwhelming you.

When you’re making your list of potential problems, think along the following lines:

Physical problems

This covers all those things that might damage your property. They may be:

• Accidental damage, such as floods, storm damage, earthquakes or sudden subsidence, and some types of fires.
• Deliberately engineered incidents, such as arson, explosion or equipment tampering. This category also includes the sort of damage that comes from riots or demonstrations, such as broken windows, wrecked equipment or released livestock. Remember that you don’t even have to be an obvious target to suffer from such activism – the neighbours of such targets often suffer from over-enthusiastic protestors too.

Other events which prevent you from using your property

Even without physical damage to your property, other things may either prevent you, your customers or your suppliers getting to your property. Think again of demonstrations at neighbouring premises, floods, landslides or collapsed bridges between you and the main routes, plus animal diseases, or any of the other problems that can create no-go areas.

Equipment failures

This covers any machinery which is essential to your operation, including delivery vehicles and forklift trucks, and also computers and telephone systems. It could be the result of a computer virus, a lightning strike or simple breakdown.

Product failures

This covers faulty goods that have caused injury or have to be recalled. When one pharmaceutical company had to recall one of its products, it was able to turn the disaster into a public relations triumph. When it re-released the product, it made big headlines with the fact that it had not only resolved the problem, but had made it safer than its competitors’ products. The public was prepared to listen, thanks to the efficient and thorough way it recalled the faulty products in the first place.

Other issues could include a design you did years ago proving inadequate and causing consequential damage, somebody using your company’s name for their Web address, or a manufacturer ripping off your patent.

Supply chain and delivery chain events

Are you dependent on a single supplier for any item which is essential to your operation, or on a single delivery company or wholesaler to get your goods to retail customers? How would you cope if they went out of business or stopped dealing with you for some reason?

For example, one small book publisher had, fortunately, seen the warning signs of trouble with its wholesaler, and was able to put a contingency plan in place. When the wholesaler suddenly suspended operations, the publisher put the plan into action and was able to recover the stock of its books from the wholesaler’s warehouse before liquidators took over and seized everything. This didn’t solve the problem of payment for the books already sold, but it did mean the publisher still had stock to sell, instead of having to find hundreds of thousands of pounds for reprinting.

Personnel problems

This covers several areas. The first is the death or long-term incapacity of crucial employees. One specialist furniture-maker realised that it had only one person who knew how to apply veneers to its best-selling range, and that he was elderly and in failing health. This realisation made them locate a substitute in case they needed it.

Replacing such a key worker should not be too difficult if you think of it in time, but what would you do if it were your business partner? The business affairs of a deceased partner can stay in limbo for many months, or even years, until the executors obtain probate, at which point they may not agree with your plans for the business.

And what would you do about a wholesale departure of your staff, if their lottery syndicate had a big win, several were in a car crash or your main competitor poached them? Or what if they all went on strike or went down with flu at the same time?

Public relations disasters

Hopefully no one will stand up in public and announce that your products are rubbish, but there are many other situations where a wrong word or action can send the media into action. It doesn’t even need to be true: false statements to the media from an aggrieved customer or employee can soon blow up into a major event that turns all your customers away, muttering, ”No smoke without fire…”

Moving goal posts

These cover all the situations where the business environment changes radically – where an aggressive competitor moves into your area, new technology destroys the market for your now old-fashioned product, or legislation changes. Alternatively, two of your major customers may declare war on each other and each insists that they’ll go elsewhere if you continue to supply the other.

Planning for insurable risks

Once you’ve identified the potential risk situations, you should review what cover you have, what could be added to your policy and what things are best dealt with by setting up a contingency fund.

As well as the obvious cover for buildings, equipment and stock, you should insure against loss of profits and additional expenses (such as renting alternative premises or equipment) through business interruption insurance. These are part of most standard commercial policies, or can be included as additional cover.

However, insurance is only the start of the story. You still need to plan your recovery – how will you lure your customers back, for example? When one bakery burnt down, its crisis plan swung straight into action: it approached its main competitors the same day and asked if they would supply its customers. Naturally, they were only too happy to step into the breach. This way, the bakery ensured that its customers did not experience a single hitch in deliveries. Once the new ovens were installed, the bakery revisited its original customers and asked them for their business again. Most customers were happy to return, in spite of the bakery’s prices being undercut by its competitors, because they had been handled so professionally, and because they were more familiar with the product.

Planning for non-insurable risks

Planning for something that you cannot insure against comes down to creating a series of action plans, one for each possible risk. If the worst does happen, you and your staff need to know exactly what to do and in what order.

Obviously, each type of risk will call for a different type of response, but the basics are always the same:

• Minimise the immediate damage. First, by preventing the situation from getting worse – for instance, using sandbags to keep out floodwater. Secondly, by reducing the knock-on effects. If this involves adverse media coverage, you will almost certainly need the assistance of a PR expert.
• Keep your insurers informed.
• Keep your staff informed. They may fear the worst and start looking for another job. So you need to explain what is happening in detail, and get them back to work as soon as possible. This means working out a contact system which passes the initial news and regular updates down a defined line. Also, work out which people or departments are needed immediately, and which can be stood down for a few days.
• Keep suppliers informed. They will need to know whether deliveries should be postponed or diverted; they will also want to know whether you will be able to pay them on time.
• Keep customers informed. They will want to know whether you can deliver their orders, and if so, when.
• Keep your bank informed. You may also need to organise or reschedule loans.

Working with PR companies

You may not have felt the need for PR representation before, but you will certainly need it if you come under media scrutiny. With the proliferation of local radio and TV stations, you will probably need someone experienced to field enquiries, fend off intrusions and generally guide you on how to react. Immediately after disaster has struck is not the time to be searching the internet to find a PR company prepared to take you on at a reasonable fee...

A good PR company will not only stand between you and the media, it will also help you with training in case you do have to face reporters yourself.

Testing and acting on your plan

Once you have worked out your contingency plans, organise some dummy runs of as many of them as is feasible. This may not be possible beyond the level of informing your staff and ensuring that each one is equipped to perform their part of the plan – for instance, keeping a copy of an up-to-date list of your customers or suppliers off-site.

Where your assessment and planning has suggested a need to obtain back-up facilities, start arranging these straight away. For example, if you need to move into temporary office accommodation, where are the nearest, most suitable alternatives? You may be able to make reciprocal arrangements with another local business, so doing this needn’t be expensive.

Take advice

There are many sources of help with risk assessment and contingency planning. Start with your insurance company. Most commercial insurers employ risk managers to help their clients.

Alternatively, there are a number of commercial organisations and professional bodies in this field. As well as being a source of consultants and training, they offer lots of useful information and guidance notes. These include:

The Business Continuity Institute – it has an excellent website at www.thebci.org, with numerous useful links. Tel: 0870 603 8783.
The Emergency Planning Society – it has training sessions on crisis management for smaller businesses. www.emergplansoc.org.uk. Tel: 08456 009587.
The Cabinet Office – it offers advice on preparing for emergencies on its website at www.pfe.gov.uk. You can also download copies of the Government’s Emergency Planning Booklet

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