BusinessTN

For a growing business, one major setback can spell life or death. Preventing a natural disaster is outside the scope of even the largest firms, so what can a small business owner do to protect against catastrophic events? Every industry has unique vulnerabilities, and each company particular needs. Fortunately, insurance brokers and agents make a living tailoring policies to companies. A broker works with a business to develop a policy that meets its needs, then finds a matching insurance provider. Agents work from the opposite direction, finding businesses that fit insurance companies.

Whether an agent or broker matches you with an insurer, you need to know who you are working with—and they need to know your industry, not just your business. A broker unfamiliar with industry choke points and blind spots can't protect you. Go for the top agents, says James Odell with Willis North America. They're the ones most likely to have enough clout with the insurance companies to tweak policies in your favor. Generally, you'll want to look for agents or brokers who work with multiple insurance providers, rather than showing bias towards one at your expense. In that same vein, every agent or broker should be willing and able to divulge how much money he or she makes. Secrecy implies incentives and bias, Odell warns.

Gray areas inevitably arise with a policy, but customers who have stayed with an insurer five or more years have an advantage over a those who hop from provider to provider. Remember, insurance companies are businesses, just like yours—what you appreciate in a customer, they do as well. Natural disasters are difficult to predict and impossible to control, but some simple steps can be the difference between weathering the storm and being washed away. Find places to keep backup data outside your business. Odell stresses that backup storage is crucial, whether it be data or inventory. When looking for a backup location, "I wouldn't be bashful about reaching out to competitors," Odell says. Competitors and suppliers understand how important your information or inventory is, and often know how best to protect it. Just make sure that sensitive information is kept under wraps.

Shop around for contractors to rebuild before disaster strikes. This saves money and precious time. Form a disaster recovery team of high level officers now, and they can keep records of every expense using a general ledger number for every purchase made. This way, when your company makes its claim with an insurance provider, every cost is easy to track.

According to economist Jeff Cornwall, litigation occurs most often with employees, partnership agreements and customer issues. For small businesses, these are are also among the most ignored areas. It's easy to forget the need for contracts, records and strict policies when you personally know all the people with whom you work, but a startup business should have employment and quality control policies in place from day one. Larger companies have a risk manager appointed to enforce standards and determine specific sources of exposure, but an officer with those duties would be just as effective for a small company. Enforcement is everything, says Waller Lansden's Robert Guy, because plaintiff's lawyers love to point out an existing policy that was not followed.

In case a suit does not go your way, structure your business to mitigate damage. Personal ownership is never a good idea when it comes to risk, and neither is partnership, since you can be held liable for any actions of your company or partner. A corporate system or a limited partnership spreads the blame while protecting individuals from loss. Keep a careful eye on the officers' insurance policies, as those can be included in a judgment and lost to creditors. Lawsuits against company officers are en vogue, Guy says, as a way to get more money out of a failing business. To protect officers, avoid what Guy calls "management in complete denial"—the inability to admit when a company needs to change direction. Company leaders have a "fiduciary duty in the zone of insolvency," which is the responsibility to take actions in the best interest of the company, share-holders and, potentially, creditors. Directors who waste a failing company's assets and drive it into the ground leave little for the creditors, which can lead to another suit.

Have a plan for every kind of loss, whether it be damage to infrastructure, liability or even market changes. Insurance companies like a customer that makes it easy to offer coverage. Learn how to protect yourself, and it will be easier to ask for help from insurance companies when the time comes.