Business Protection Bulletin

Small business owners can hire individuals as either employees or independent contractors. Which classification a hired individual falls under is often a confusing process for business owners, but it’s this critical classification that affects what tax documents must be filed; how much you, the business owner, pays in taxes; as well as whether or not you should be withholding from a particular worker’s paycheck or not.

If you own a business and hire people, then you should keep these seven points in mind as you go about hiring workers as either employees or independent contractors:

1. If you, as an employer, intentionally or otherwise misclassified your workers, then you could suffer significant tax bills and be facing hefty penalties for not filing the appropriate tax forms and not paying employment taxes.
2. You should know and understand how the Internal Revenue Service (IRS) determines the relationship between a worker and a business. The IRS uses the following three factors in determining this relationship:
   • Type of relationship, which means how both your business and the worker views the relationship.
   • Financial control, which refers to whether or not your business can control or direct the business and monetary aspects of the worker’s job.
   • Behavioral control, which refers to whether or not your business can control or direct how work is done through means like training or instruction.
3. IRS Form SS-8, which is labeled as the Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, can be filed by employers and/or workers. This form essentially asks the IRS to determine if a specific worker’s status should be classified as an employee or as an independent contractor. IRS form SS-8 can be obtained online at IRS.gov or by calling 1-800-829-3676.
4. Generally speaking, a worker should most likely be classified as an employee if the employer can direct or control what is being done and how it’s done.
5. Generally speaking, a worker should most likely be classified as an independent contractor if the employer only directs or controls the result of the work, and not the manner, means, or methods being used to accomplish the end result.
6. Do ensure that workers are aware of their classification, or worker status. This will not only help them avoid higher tax bills, but also avoid losing any valuable benefits.
7. Check out the small business tab on the IRS.gov website and IRS publications 15-A, 1779, and 1976 to find out more about determining a worker’s status as either an employee or as an independent contractor.

On April 20, 2011, someone hacked the Sony Playstation Network. They found an opening in the online video gaming network’s password-reset system and penetrated the security protecting its customer database. Days later, the company admitted that the hackers had obtained personal information on 70 million or more subscribers. The hackers got names, physical and email addresses, birthdates, and other identifying information, and it’s possible that they got credit card numbers. Sony took the network offline to reinforce it, but within days of it coming back online, hackers broke in again.

Playstation Network is a high-profile target with tens of millions of subscribers, making it attractive to criminals. However, even small businesses that do business over the Internet are vulnerable to the same kinds of intrusions. The federal Internet Crime Complaint Center referred more than 146,000 complaints to local, state and federal law enforcement agencies in 2009, 22 percent more than the year before. One out of every three of those complaints was for identity theft, credit card fraud and computer fraud. The Ponemon Institute has reported that the average data breach costs businesses $7.2 million.

What could happen to a business’s data?

Over a seven-year period, a Georgia man stole 675,000 credit card numbers and associated information. He racked up thousands of fraudulent transactions and bills exceeding $36 million. A Texas man received a 110-month prison sentence for hacking into 14 computers in the hospital where he worked as a security guard. He disabled network security systems, installed malicious software, infiltrated a nursing station computer containing patient medical records, and gained remote access to temperature-control systems. The FBI caught a North Carolina man in the act of attempting to access an ATM in 2010. The man had planned to hack into 35 ATM’s located around Houston, Texas in the hope of pocketing more than $200,000.

When consumers and business owners give their credit card numbers and other personal information to a business or organization, they expect that this information will stay confidential. They will hold the organization responsible if they suffer financial harm because their information fell into the wrong hands. The organizations that lost the data face the potential for large jury awards or out-of-court settlements. To protect themselves, they should consider buying cyber liability insurance.

One insurance company advertises a Cyber Liability policy that provides coverage for expenses such as:

• Damages to third parties caused by a network security breach
• Loss resulting from administrative or operational mistakes made by the business’s own employees or by outside vendors
• Expenses resulting from a breach of consumer protection laws, such as HIPAA or the Fair Credit Reporting Act
• Costs of notifying customers of a breach
• Public relations expenses necessary to repair the business’s reputation.

Nearly 30 insurance companies currently offer Cyber Liability policies. If an organization’s insurance broker does not have direct access to a company that offers the coverage, they might be able to obtain it through a specialty broker.

To prevent or reduce losses and to make themselves more attractive to insurance companies, businesses should implement strong network security systems, and continually monitor and update them as needed. Develop plans for responding to any network intrusion events that do occur. A sound plan identifies who should be involved in the response, has procedures for notifying affected customers and authorities, and has a public relations strategy for keeping the public informed.

The majority of businesses and organizations operating today are vulnerable to unauthorized intrusions into their computer networks. The potential costs are more than most organizations can fund on their own. Cyber Liability insurance is a smart investment that can literally save a company. Call our office today!

State laws or lenders require people and businesses to buy certain types of insurance. Most states require Automobile Liability insurance on all registered vehicles. If the vehicles are financed, the lenders will require the owners to carry Collision and Fire coverage. Employers have to carry Workers Compensation in most states. Mortgage lenders require borrowers to insure their buildings against loss by fire and other perils. In certain areas at high risk of flooding, lenders might require them to buy Flood insurance as well.

However, many kinds of insurance are not required by anyone. In Texas, employers can opt out of buying Workers Compensation coverage. Although nearly all businesses use computer networks, no laws or lenders require them to buy insurance against damage to their systems or damages others might suffer because of a problem with their networks. State laws do not require employers to carry Employment Practices Liability coverage. Lenders normally do not require people who live in low-risk flood zones to buy Flood coverage. No laws require businesses to buy Umbrella policies, which provide additional liability insurance above standard Liability and Auto policies. This begs a question: If an individual or business is not required to buy certain types of insurance, should they skip them?

The reasons for passing on non-mandatory insurance are compelling. Although the future occurrence of a loss is uncertain, the cost of an insurance premium is not. Insurance can cost significant amounts of money that many people would rather put to other uses. Further, people might believe that they are unlikely to have some types of losses and therefore do not need insurance against them. Many businesses do not carry Cyber Liability insurance for this reason. People who do not live near bodies of water often do not even think about Flood insurance. Some types of insurance can also be difficult to get. In parts of the U.S. prone to earthquakes, the market for Earthquake coverage is very limited.

There are good reasons for buying insurance even if it’s not required. Many of these policies cover jury awards in injury and damage cases, and those awards can be substantial. Consider the following awards that would likely be covered by Employment Practices Liability insurance:

• A jury awarded $934,000 in damages to a deaf man fired by the convenience store that employed him.
• An Alabama man who was fired after complaining about his employer to the federal Equal Employment Opportunity Commission was awarded $314,000.
• A jury ordered an employer to pay $900,000 to a Cleveland woman for discriminating against her because of her age.

Umbrella policies would come in handy is situations like these:

• A woman who suffered injuries when she fell in a store was awarded $3.2 million.
• A jury awarded $11.7 million to an elevator mechanic who was injured while working on a construction site.

People and businesses who think they don’t need Flood insurance might want to reconsider. Floods can result from melting snow and water main breaks as well as rainfall. According to the Federal Emergency Management Agency, people outside of high-risk areas file over 20% of Flood insurance claims and receive one-third of disaster assistance for flooding. The agency estimates that as little as one inch of floodwater in a 2,000 square foot home can cause up to $21,000 in damage.

For these reasons, it is wise to at least consider buying insurance that no one requires. One of our professional insurance agents can answer questions and help you weigh the costs and benefits of buying extra coverage. Going without insurance can be a very costly mistake. Just because it’s not required doesn’t mean you shouldn’t buy it.

Directors & Officers Liability coverage is important for all medium and small firms. This form of coverage protects personal assets of directors and officers during a lawsuit stemming from mismanagement. When they’re charged with mismanaging the company, directors and officers who don’t have this type of insurance face the risk of significant losses. Directors and officers liability affords them the protection they need, and money for their legal expenses is also provided. If the company they work for must be brought into the lawsuit, this coverage may also be extended to include the company itself. There are many other beneficial provisions these policies offer.

Directors and Officers Make Mistakes. Nobody is perfect, so it’s important to be prepared for directors and officers to make mistakes. Although most mistakes that require this coverage are the result of negligence, it’s important to remember that anyone is capable of making such mistakes. Although training directors and officers to make responsible and ethical choices is necessary, don’t pay so much for training that there isn’t enough money for liability coverage. It’s better to create a healthy balance by preparing representatives and obtaining coverage to protect them.

Lawsuits Might Drive an Unprotected Firm into the Ground. Unfortunately, many firms don’t implement a Directors & Officers Liability policy. When a lawsuit is filed, the importance of this vital coverage is learned. If there is proof of the director’s or officer’s negligence, the case will be difficult to win. In a best-case scenario, a good attorney might be able to minimize the amount of damages the company or representative must pay. However, a good attorney is expensive. In addition to this, the damages that must be paid hurt the company’s finances. Some executives or companies are forced into further debt or bankruptcy to compensate for the lawsuit. There are many other smaller expenses that add to the total loss.

The Breadth of Coverage Is Generous. Many companies forgo liability coverage for their directors and officers because they think it’s too expensive. However, it’s actually very affordable, especially when the many provisions are considered. Each insurance company varies slightly in their specific inclusions. For example, companies that provide basic policies might cover only the attorney’s fees for the company, directors, and officers. Some insurance companies that have more extensive coverage might include lodging, travel expenses, and childcare reimbursement for defendants who must travel for court proceedings.

The Likelihood of a Lawsuit Is High. Whether or not a company is in a high-risk business, there is always a high risk for lawsuits against directors and officers. In a study performed in 2010, 25% of small firms said they purchased Directors & Officers Liability insurance. About 12% of the executives interviewed stated that they experienced a lawsuit. The average cost of the litigation process was more than $200,000. However, some executives reported losses as high as $5 million. This example paints a clear picture of how likely it is to experience a lawsuit. It also illustrates how expensive such legal procedures are.

It’s important to compare insurance companies before selecting a policy. As mentioned before, not all companies offer the same coverage. Comparing rates and provisions is the best way to get the most value for every dollar spent. To determine how much coverage is needed, it’s important to assess risks. Most insurance representatives are happy to provide current and useful resources for this matter. They usually ask a series of general questions. Most agents ask several industry-specific questions also. There are some policies that are better than others for specific industries. Another important aspect of searching for Directors & Officers Liability insurance is researching underwriters. The companies who underwrite insurance policies have varying policies. It’s rare to find two underwriting companies with identical rules. By performing some research on each preferred insurance company’s underwriter, it’s easier to determine which policies are the most solid. Be sure the company is rated with an A. Avoid doing business with insurance companies who use underwriters with lower ratings.

As every business owner knows, risk is an unavoidable part of doing business. However, it is manageable and controllable. Although it is a challenge that requires time and experimentation, finding a perfect balance between profitability and peace of mind is essential. It’s impossible to eliminate risk completely, so it’s important to set realistic goals. Policies that are enacted in an attempt to fully eliminate risk could actually hamper business growth.

The Importance of Risk Management. The common concept of risk management among small business owners involves simply purchasing regular insurance protection. Other aspects of protection often escape consideration. Risk management is much more complex than simply purchasing insurance and implementing rules. These are both necessary parts of every plan. However, there are many other things to consider.

Tips for Implementing a Realistic Risk Management Plan. It’s best to start with a simple plan that is easy to follow. The prime goals should be mitigation and management of business risks. After trying the plan, analyze it and make any necessary changes or additions. Consider the following steps in order to make a positive change:

1. Identify the Risks. There are some risks that are universal. However, there are also some that are specific only to certain types of businesses. It’s important to conduct a thorough risk analysis to identify them. The best way to accomplish this is to use a standard risk checklist. There is a Small Business Insurance & Risk Management Guide available from the Small Business Administration. This guide is helpful in outlining potential risks. While going through the list, pay close attention. Most business owners are able to think of other potential risks that are unique to their situation during this process. Some of the most important initial risks to consider include:

• Property losses that occur from loss of use, physical damage or criminal activity.
• Liability losses that happen to customers and are the fault of the business.
• Business interruption losses stemming from fires, natural disasters or other unpredictable occurrences.
• Key person losses or the loss of important employees, which results in a negative impact on the company.
• Employee injury losses that occur when an employee is injured on the job and must be compensated.

2. Determine How Vulnerable the Company Is to Various Risks. Consider the various risks and how much each one would cost the company. Not all types of companies are as vulnerable as others. Companies with high vulnerability to expensive risks need to make those specific areas a strong priority in their risk management plan. The risks that aren’t worth worrying about should receive a much lower priority. Keep in mind that it’s not feasible to eliminate every possible risk. However, some need much more consideration than others. For example, a paper manufacturing company should consider the risk of employees losing limbs on dangerous presses in the manufacturing line before they become concerned with possible paper cuts to fingers of employees in the inspection department. As an overall rule, the cost of preventing the risk should never exceed the amount the estimated loss that might result from that risk.

3. Create a Contingency Plan. There is more to this aspect than purchasing insurance. Be sure to implement plans that place employee safety higher than efficiency. Install a security system to protect all property from theft and damage. Avoid transactions with unknown customers. Implement plans to train supervisors to minimize loss of key employees.

4. Purchase Adequate Insurance. In addition to purchasing enough insurance, it’s imperative to purchase the right types. Some of the key types of coverage to purchase include:

• General Liability insurance, which covers the legal liabilities faced from injuries to third parties. Medical expenses, property damage and bodily damage are typically covered.
• Professional Liability insurance, which covers allegations of malpractice, negligence and other errors in services.
• Product Liability insurance, which covers the expenses related to injuries or damages resulting from a defective product. This is essential for all companies producing tangible products.
• Commercial Property insurance, which covers loss and damage costs for business properties. Business interruption is typically covered by this provision.

5. Revise as Necessary. Be sure to review and update risk management plans regularly. Reassess risks and make any necessary changes. It’s important to have regular review meetings with department heads, owners and a risk management consultant. Be sure to inform the insurance company of any changes or new risks.

Business owners who plan to raise capital from investors must be especially vigilant in their risk management planning. Having a good plan and updating it regularly is important for gaining their trust and making them comfortable with the opportunity to invest.

The economic downturn that began in late 2007 has taken a severe toll on all sectors of the U.S. economy, but it hit the real estate sector especially hard. Real estate research company Green Street Advisors reported in March 2011 that commercial property values were 17% below their peak in August 2007. CoStar Group reported that the values of the highest quality office buildings, relatively new retail and industrial properties, and apartment complexes were down 33% since June 2007. These large price decreases might attract investors in search of good buying opportunities. However, potential buyers should look beyond the low purchase price when they evaluate these properties. The properties’ physical state, legal issues, and insurance considerations also affect whether they are smart investments.

Many of these properties were only partially completed when the financial crisis hit, so buyers must assess their economic viability and physical condition. They need to ask:

• How much of the project has been completed and how much remains to be done?
• Does any of the work need to be repaired or redone because the builder, facing financial difficulty, took shortcuts in material quality or construction?
• Do the original construction plans comply with current building codes? Are there any design errors that need correction?
• Are there any significant changes the buyer would like to make to the project?
• What liabilities (debts, lawsuits, penalties, etc.) will the buyer assume with the property?
• Who will be legally liable for any defects in the design or construction of the project?
• If the original owner and builder are responsible for the problems, can the buyer recover from them?
• What insurance covered the original project? Did one program apply to the entire project, or did each individual contractor have its own coverage?
• Will the insurance apply to construction defects?
• If a single wrap-up insurance policy covered the project, did it include a deductible or self-insured retention? If so, and the insured owner or contractor has declared bankruptcy and is unable to pay it, will the insurance still apply?
• Are there special conditions that must be met before the policy will apply when the deductible or SIR cannot be paid? Does the original wrap-up policy extend completed operations coverage beyond the policy’s expiration date? If so, for how long?

Prospective buyers need to pay special attention to Builders Risk insurance on the project. If the original developer bought this coverage, the policy might have cancelled after work on the project stopped. A policy purchased by the general contractor might still be in force, but the buyer should review its terms and conditions carefully. Due to the long period of inactivity, vacancy and unoccupancy provisions might have taken effect. The buyer should also check to see if the policy covers catastrophic perils such as flood and earthquake; lost income and extra expenses resulting from delays due to covered perils such as fire or vandalism; and the extent of coverage for testing.

Regardless how low a property’s price might be, it is no bargain if it comes with a host of physical and legal problems. Arranging insurance on a property with severe problems might be very difficult or even impossible. An insurance agent or broker experienced in obtaining coverage for such properties can help sift through the issues and identify appropriate policies. There is no substitute for a careful examination of a property and all that comes with it. Buyers who do their homework will uncover the profitable opportunities.

On the opening day of the 2011 baseball season, a San Francisco Giants fan named Bryan Stow attended the Giants’ game against the rival Los Angeles Dodgers at Dodgers Stadium in L.A. After the game, as Stow tried to hail a taxi, two men accosted him for wearing Giants fan apparel and administered a brutal beating.

Violent crime is not unique to Los Angeles or Major League Baseball teams. Something like this could happen in a school, an apartment complex courtyard, or in the parking lots of a shopping mall, a convenience store, a library or a restaurant. If it is common for groups of people to gather at your business, there are a few lessons you can take from this incident.

1. The amount of liability insurance you buy matters — a lot. All businesses try to stretch their dollars, so limiting insurance costs is a natural thing to do. When a severe event like this happens on your property, however, the questions that will matter are: Will my insurance cover it? Do I have enough insurance to cover all of it? The insurance premium might seem like a minor consideration.

2. One of the most important features of liability insurance is that it covers the cost of providing a legal defense. In smaller towns, good lawyers cost a few hundred dollars an hour; in a large city like L.A., the cost is many times that. Many insurance policies provide an unlimited amount of coverage for defense costs in addition to the amount of coverage for the settlement or judgment. Check your policy or ask our agents if you’re not sure how your policy handles this.

3. Your business might have an exposure to this kind of incident even if your relationship with the location is incidental or indirect. The Stow family’s lawsuit names 19 parties and has placeholders for dozens more. Each of these parties will require legal defense and a source of funds for potential payments. Some of the parties operate parts of Dodgers Stadium, while others are part owners. The team’s principal owner is named individually and in his role as owner. In the case of a severe injury like this, the plaintiffs will look to sue anyone with any slight relationship to the incident.

4. Security, including video surveillance, is vital. Monitored security cameras can catch an incident before it begins or before it escalates to the extremes that this one did. Also, the mere visible presence of security cameras can deter some individuals from starting trouble.

5. Incidents like this can and will hurt your business. Attendance at Dodgers games was down 200,000 through the first two and a half months of the 2011 season. The median ticket price is $27, with many seats selling for much higher amounts, so it’s safe to say that the attack is at least partly responsible for more than $5 million in lost revenue. Due to the principal owner’s personal problems, the Dodgers were already in financial trouble, so this comes at a particularly bad time.

This horrible attack is, fortunately, quite rare, but violent crime is still a very real possibility. Every business owner should consider how something like this would affect the business, take precautions to prevent such incidents or make them less severe, and work with one of our insurance agents to make sure it has appropriate financial protection.

By the beginning of 2011, the social networking Website Facebook had more than 600 million users. An estimated 200 million people use micro-blogging service Twitter. The business networking site LinkedIn has reported that it has more than 100 million members. In addition, the Internet hosts millions of blogs and tens of thousands of podcasts. These sites and media, popularly known as “social media,” have opened up new ways for people and businesses to communicate with each other. As the numbers show, they have become extremely popular. Consequently, businesses are increasingly using social media to reach current and potential customers.

However, use of these services presents risks together with the potential benefits. For example:

• Employees making posts on these sites might make inaccurate statements, particularly when not all the relevant facts of a developing situation are known.
• They might inadvertently release confidential information.
• They might make statements that embarrass the company, such as negative remarks about racial or ethnic groups.
• They might make statements that violate a person’s privacy.
• Disparaging statements might provoke others to sue the company for libel. For example, if an employee of a restaurant posts on Twitter that a competitor’s stew looks and tastes like cheap dog food, the competitor might sue.
• Blog posts that offer advice might expose the employer to lawsuits if others take the advice and get undesirable results.
• Disgruntled customers, employees or competitors might post disparaging comments about the company.
• Any of these situations can harm the company’s reputation.

The company’s General Liability insurance policy might not pay for the costs of defending against these claims or paying settlements. For example, the insurance will not cover losses resulting from:

• An injury caused by or at the direction of an employee when he knew that the action would violate a person’s right to privacy.
• An injury caused by or at the direction of an employee when he knew that a statement was false.
• Claims that the business’s products or services do not live up to statements about their quality.
• Injury arising out of statements made on Internet chat rooms or bulletin boards the business owns or over which it has control
• . Unauthorized use of someone’s name or product in a manner that misleads that company’s potential customers.

In addition, the insurance only covers liability for certain types of injuries that are not bodily injuries. It will not cover a lawsuit filed by someone who suffered financially after relying on advice on the company’s blog. To reduce the chance that an uninsured loss will result from the use of social media, businesses should consider:

• Written procedures for employee use of social media, including:
  • Who may post on the company’s behalf.
  • Definitions of acceptable and unacceptable behavior.
  • Employees’ personal sites should make clear that that the employees are not speaking on behalf of the company.
  • When a discussion should move offline and into the company’s regular workflow (for example, when a customer has a specific complaint that should be handled out of public view).
  • The consequences of non-compliance.
• Company policies regarding employees’ ability to link to the company’s Website on their personal social media pages. The policy should also address employees’ use of the company name, logo, or other advertising on their sites.
• Company policies on the content that employees may post on blogs, both those of the company and others blogs where the employees post on the company’s behalf.
• Purchasing special insurance to fill in gaps left by the General Liability coverage.

Social media offers exciting new opportunities for businesses to build relationships with customers. However, they need to approach it with care and proper planning if they want to reduce the risks.

Most new business owners are concerned that everything is favorable for the success and safety of their business, which includes obtaining the protection of business insurance. However, longevity and success can cause complacency. Let’s say you started your business 10 years ago with just a small space and computer desk. Today, you have an office full of employees and equipment. Do you still have the same insurance policies from 10 years ago? If so, you might not realize how under-insured you’ve become. Business owners need to ensure they’re reviewing their business insurance programs annually. Errors happen and circumstances change, even when policies were initially obtained with care and caution. Without yearly examinations, substantial expense and risk can ensue. It’s common for small businesses to start out with basic insurances, such as Commercial Property and General Liability policies. However, as they evolve, most find they need other types of insurance, such as:

• Excess Liability or Umbrella – covers claims exceeding your standard policy’s limits.
• Workers Compensation – once your business reaches a certain number of employees, this type of insurance will actually be required in most states to provide payments for an employee’s lost wages and medical expenses following a workplace injury.
• Professional Liability – covers your service-provided mistakes and usually your attorney fees.
• Auto, Hired and Non-Owned – protects your business should an employee cause a vehicle accident in their personal or rented vehicle.
• Commercial Auto – coverage not under personal auto policies, such as to your business and for employees unloading and loading.
• Employment Practices Liability – coverage for HR issues, such as those related to termination, harassment, and discrimination laws.
• Directors and Officers liability – financial protection for directors and officers should they be sued for wrongful acts stemming from performance of their duties.
• Employee Benefits Liability – covers liability issues from an omission or error in the administration of an employee’s benefits that results in the employee incurring a cost, such as a terminated employer losing benefits after not being providing with COBRA information.

Depending on your business, many of these insurances may be essential to adequately protect yourself. An annual insurance review is an ideal time to discuss these insurances, as well as your need for them, with your agent. Ensure the following elements are considered as you begin the review:

• Revenue – more business is good, but it also means a greater potential for liability. Have annual sales changed?
• Property – have you added equipment, computers, and such that would create a need to increase your commercial property policy’s limits?
• Location – your business owner’s or general liability policy could be impacted if you’ve added, closed, or moved locations.
• Travel – a hired and non-owned auto policy may be needed if your employees are frequently driving rented vehicles.
• Employees – have you had an increase in your workforce, turnover rate, or use of contractors? Consider employment practices liability insurance for high turnover rates. Workers’ compensation insurance may be a new requirement if you’ve added to your workforce.
• Services – are you offering additional services? For certain types of work, you may need additional endorsements to your general liability policy.
• Customers – are you serving new clients or industries? This may cause problems with your professional liability policy if you’re servicing high concentrations of high-risk clients/industries.

The answers will be different for every business and usually won’t remain the same over the business’s life, and that’s why insurance isn’t a one-size-fits-all, unchangeable product. Take advantage of these attributes and annually review your business for exposures and insurance needs. Insurance may not cover everything, but it can certainly mitigate your risks. Start your annual business insurance review today with one of our insurance agents.

Of the U.S. companies that are victim to a man-made or natural disaster, the Contingency Planning Research Strategic Corporation says 43% never reopen their doors and 29% are out of business within the following two years. A study by Touche Ross found that companies without a disaster recovery plan only have a 10% or less survival rate. Business owners should be seriously asking themselves whether or not they have an adequate recovery plan for disasters. There are three crucial areas that all disaster recovery plans should cover:

1. Physical Resources. Of course, the physical assets of a business, such as equipment, electronics, office furniture, and the building itself, are things that usually can’t be quickly or easily replaced if they’re damaged during a disaster. The following are questions that an adequate disaster recovery plan should answer:
   • Are there at least three days worth of emergency supplies on hand to carry the business immediately following the disaster?
   • What steps can you, should you, and will you take to protect physical assets?
   • How would physical assets hold up against various disasters – flood, hurricane, tornado, fire, earthquake?
   • Who will assess the damage to physical assets following a disaster?
   • Has a list been made to prioritize the replacement of key physical assets and what suppliers or companies should be contacted for the replacement?
   • Is access available from an off-site backup system if data and electronics are damaged and how often should backups take place?
   • How will important documents and records be kept secure and protected?
   • Is an alternative facility an option to resume operations if the primary location is unusable and what location and type of facility would be needed?
2. Human Resources. All employers know that their employees are one of their business’s most vital assets. Therefore, employee safety and the resulting personnel issues that follow a disaster should be a top priority. The following are questions that an adequate disaster recovery plan should answer:
   • Have all staff been adequately instructed on the disaster recovery plan?
   • How will staff find safe shelter?
   • How will contact be maintained with staff during and after the disaster?
   • Are current contact numbers for all staff, vendors, suppliers, and clients available at an off-site location and how will this list be maintained and updated to stay current?
   • Have staff members been identified to assume mandatory or key roles should other employees not be able to resume their roles?
   • Are staff members assigned to form a crisis management team?
3. Operation Continuity. This component is about getting the business back up and running after the disaster. The following are questions that an adequate disaster recovery plan should answer:
   • Does insurance, in particular business interruption insurance, provide adequate coverage?
   • What amount of cash will be available for emergency contingency expenses? * If the facility isn’t usable, then where should an alternative command center be located to coordinate the recovery? * Is there an alternative list of suppliers to use in the event regular suppliers aren’t operational? * What should be done for clients and customers during and after a disaster?

Employers might further assign specialized teams to be in charge of some of the tasks related to the above points. For example, a post disaster recovery team could manage recovery tasks like getting the business up and running quickly; an administrations team could handle areas like logistics, transportation, and emergency and survival gear; a public relations team could make public announcements and field inquires; a client/supplier communications team could advise vendors and clients of the business’s status; and an IT team could be responsible for software and hardware issues. Remember, disasters can strike with little, if any, warning. Business owners can keep themselves off the wrong side of the statistics by being prepared and being able to get themselves up and running as soon as possible.