Contingency planning

Scope

All businesses should have a business continuity plan to prevent the disruption of operations or closure due to unexpected events.

Regulatory citations

• None

Key definitions

• None

Summary of requirements

Continuity planning. Business continuity planning involves devising a plan that guards against disruption of business in case of unforeseen events. A business continuity plan defines the necessary procedures that will ensure timely and orderly resumption of the business cycle through the execution of well thought out plans, with little or no interruption in service or operations.

What needs to be asked is what will the business do if it is hit by fire, flood, or earthquake? What will happen to the company if the owner or other key personnel die, or leave the company unexpectedly? What will the company do if a technological disaster hits, such as having all of the business data and records wiped out by a computer malfunction or crash?

More importantly, in the transportation industry what must be asked is what will the company do if one of the drivers has a major accident, causing a substantial loss of equipment, cargo, or life?

The goal of a business continuity plan is to preserve and protect the essential elements of any company and maintain an acceptable level of operations throughout a crisis and afterward, as the company recovers.

Disaster and emergency planning. No business should risk operating without a disaster or emergency plan. As reported by the Small Business Administration in 2006, up to 25 percent of all small businesses do not reopen after a major disaster such as a flood, tornado, or earthquake. These shuttered businesses were unprepared for a disaster; they had no plan or backup systems.

When developing a disaster plan, three areas need to be considered: human resources, physical resources, and business continuity. Think about how a disaster could affect the employees, customers, and workplace. Think about how business could continue if the area around the facility was closed, streets impassable, or equipment was not accessible. Think about what would be needed to serve the company’s customers if the facility was closed and the company’s equipment was gone or destroyed.

Here are some suggestions that should be considered:

• Establish phone lists of key employees and customers and provide them to owners and key staff.
• Designate one remote number on which messages can be recorded for employees. Give this number to all employees.
• Arrange for programmable call forwarding for the main business line. If access to the office is not possible, the phones can be reprogrammed to ring elsewhere.
• Alarm codes and keys should be given to alternate employees in case the management person or persons cannot get to the business quickly due to location.
• Install emergency lights that turn on when the power goes out. They are inexpensive and widely available at many building supply retailers.
• Back up computer data frequently throughout the business day and keep a backup file off site.
• Use surge protectors and battery backup systems. These add protection for sensitive equipment and help prevent computer crashes due to power failure or surge.
• Purchase a NOAA Weather Radio with a tone alert feature. Keep it on and when the signal sounds, listen for information about severe weather and protective actions to take.
• Consult with the company’s insurance agent about precautions to take for disasters that may directly impact the business. Remember, most policies do not cover earthquake and flood damage. Protect valuable property and equipment with special riders. Discuss business continuity insurance with the insurance agent as well.

As a small business owner in the transportation industry, there are additional considerations to assure business and personal safety. If the truck is the company’s “office,” consistent communication to customers, business associates, and loved ones is essential to assure continued safety and success.

People need to know the status of the business at all times. Customers want to know because they are counting on the timely delivery of their freight. More importantly, if the company is involved in a disaster or emergency, the timely establishment of communications to pertinent individuals is of the utmost importance to establish continuity of the business as well as the well-being of employees and management.

Succession planning. Basically, a succession plan is a documented road map for partners, heirs, and successors to follow in the event of a business owner’s death, disability, or retirement. This plan can include a program for distribution of business stock and other assets, debt retirement schedules, life insurance policies, buy-sell agreements between partners, division of responsibilities, and any other elements that affect the business assets. The plan may also establish the value of the business, which is extremely important in estate tax planning.

In the succession planning process, clearly established goals and objectives must be defined. All of the company’s current financial resources and liabilities must be determined as well. If the business owner is retiring, the amount of control that person wants to retain needs to be determined. A decision needs to be made as to whether there is a competent successor or if not, should the business be sold or liquidated.

Another area of concern when doing succession planning is estate taxes. There are varying tax and legal issues associated with giving a business to heirs, selling it to the public, or dissolving it completely. An estate tax attorney should be consulted on these matters to assure the most financially beneficial transition possible.

A well-thought-out succession plan will make the transition of a business smooth and relatively pain free, while assuring that the wishes of the owner or founder are clearly understood and honored.