When Disaster Strikes - BodyShop Business
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When Disaster Strikes

If you’ve even casually kept up with the news in recent years, then you’ve probably noticed a disturbing increase in the number of natural disasters in the 1990s:

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Floods have washed
out huge areas in the Midwest and Southeast, Earthquakes have
reduced many parts of California to rubble, Tornadoes have ripped
through the Plains states and hurricanes have wiped out homes
and businesses all along the East Coast.

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Today, it seems, no area of the country is
immune from a potential natural disaster. And when you consider
that you’re always at risk for a fire or burglary, you need to
be prepared for any – and every – disaster that could strike your
body shop.

In March 1996, R. Jones Collision Repair in
Des Moines, Iowa, suffered a fire that completely engulfed the
shop. A faulty furnace ignited near the paint department at 2
in the afternoon during a business day, and within minutes, the
fire had spread to the rest of the building. The building was
completely burned out and most of its contents were ruined.

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"You never think something like that
could happen to you," says owner Bob Jones. "That furnace
had been checked about two months before. I was just numb as I
stood there in a 20-below wind chill, watching my shop burn to
the ground. It’s the most devastating thing that’s ever happened
in my life."

Dick Russell can relate because he, too, knows
first hand how important disaster preparation is. His shop took
in 14 feet of water for three and a half weeks during The Great
Flood of 1993. While he maintains a sense of humor about the ordeal,
the flood cost him more than $1 million dollars in lost revenue.

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"I now know which kinds of cars float
and which ones don’t," quips Russell. "We had no flood
insurance at the time, and it took three months before we were
able to reopen in a satellite operation. Once the mud was gone
and the building was redone, I thought I was over the flood. But
I wasn’t. It took about two years to get back on my feet."

As Jones and Russell can both attest, you
may not have control over a disaster, but you can control how
prepared you are and how you respond when disaster strikes.

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Step One: Business Insurance

It’s difficult to imagine a business in which
a good disaster recovery plan could be more critical. Say a major
flood, hurricane or earthquake were to strike your area. Because
a substantial number of vehicles in the area would suffer major
body damage, the body shops that were up and running the quickest
would be overrun with business – while those that were unprepared
would be spectators or, worse yet, victims; many poorly prepared
business owners never recover from a disaster.

Any effective disaster recovery plan starts
with adequate insurance. Business insurance is one of the most
misunderstood, and often neglected, facets of running a small
business. And while it may seem like a waste of resources when
you write out the monthly premium checks and see no direct return,
ask any shop owner who’s been through a fire or natural disaster
how critical a thorough insurance plan is to a body shop.

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Not surprisingly, Jones is a big believer
in insurance. And fortunately for him and his employees, he was
well-insured when the fire struck unexpectedly. "We had a
really good insurance plan," says Jones. "I would have
to say that insurance is just about as important an aspect of
running a business as you can get. I had switched insurance less
than two years before. My agent had gone over every little detail,
and I wound up with more coverage and a better price."

A few essential types of business insurance
every body shop should have are:

  • Hazard and contents insurance – If you own the building
    in which your body shop is located, you have to carry fire insurance.
    And whether you rent or own, you also need contents coverage.
    Most insurance companies in most states provide basic coverage
    against fire, wind, theft, vandalism, etc. The trick is to make
    sure that you’re adequately covered in case one of these events
    occurs.

Since, as a body shop owner, you have most of your business value
tied up in your equipment and leasehold improvements and/or real
estate, you need to keep good records of the value of your assets
in case a claim must be filed. Of course, you also want to set
your coverage level near the value of your assets. Overinsuring
is a waste of resources because an insurance company will only
replace the amount lost in the event of a fire or theft.

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  • Liability insurance – A basic business policy should
    also include liability coverage, which protects you in the event
    that negligence by you or one of your employees causes injury
    to someone on the premises of your shop. Most policies will let
    you increase the coverage amount substantially for a relatively
    small sum of money (e.g. $1 million in coverage for $100 per year).
    And with liability coverage, legal representation is free for
    the business owner if the insurance company decides to defend
    a claim.

  • Business interruption coverage – This is also known
    as business income coverage, which provides valuable working capital
    for your business in case of a loss of facilities due to fire,
    hail, tornado, etc. Many policies include a standard clause for
    business interruption of up to 12 months – in other words, if
    your shop were to suffer a fire, you’d be reimbursed not only
    for the value of property and contents owned, but also for income
    lost over the 12 months following the fire. The loss is typically
    computed by taking an average of the revenue generated by the
    business over the 12 months preceding the fire. Without this type
    of coverage, you’d have no way to recoup the income lost during
    your recovery period.

Jones agrees, saying this type of coverage was a key factor in
his staying in business. "Our business interruption insurance
kept us flush," he says. "The day after the fire, I
gathered all my employees around and assured them that I had coverage
to take care of them. I told them they would keep their jobs and
have their tools replaced."

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Other general points to consider in maintaining a good insurance
plan are:

  • Deal with a reputable insurance agent and a well-established
    insurance company.

  • Make sure you’re insured for replacement value and not market
    value of your used equipment.

  • Contact your agent when you add onto your building or acquire
    new shop equipment to ensure that the additional assets are covered.

  • Set an appropriate deductible level in your policy. If you
    set it too low, your premiums will be higher, but a very high
    deductible may cause regret in the event of a claim.
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  • Make sure you have the proper workman’s compensation coverage
    in compliance with your state laws.

  • Ask your agent about a comprehensive business owner’s policy
    (BOP). This type of policy generally includes all standard business
    insurance needed and usually saves the business owner money.

    Jones also recommends that you have someone other than your agent
    review your insurance coverage. In fact, if you have friends in
    the business, Jones suggests seeking their input before signing
    on the policy’s dotted line.

    "I have a good friend who just retired from the insurance
    business," says Jones. "He helped me a lot in making
    sure I had complete coverage that was competitively priced."

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    Russell agrees that outside input should be sought before settling
    on an insurance plan. "Good advice for any shop owner would
    be to get someone other than the person selling it to you to look
    at the policy," he says. "We do this when we suggest
    that our customer take a used car to a mechanic before buying
    it."

    According to Russell, his lack of understanding about his coverage
    became a primary source of anxiety in the aftermath of the flood.
    "It’s vitally important to be very familiar with your insurance
    plan," says Russell. "You know how the insurance company
    works on fixing cars. You’d better know how it works on fixing
    your business."

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    Mitigating the Risk

    If you’re located in an area that’s susceptible to natural disasters
    – such as floods, earthquakes or hurricanes – your standard business
    insurance policy doesn’t cover your shop against these occurrences.
    And many shop owners such as Russell have found out the hard way
    about the importance of flood or earthquake insurance. The Great
    Flood of 1993 alone caused total property damage of $12 billion.
    And although flood insurance is a relatively inexpensive product,
    statistics show that only 20 percent of those business owners
    located in flood zones bother to purchase it.

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    How do flood and earthquake insurance work? Insurance agencies
    sell the insurance, but it’s actually underwritten by the federal
    government. The rate generally runs 65 cents per thousand dollars
    of insurance. "If you’re in a flood zone," says Russell,
    "you simply must purchase flood insurance."

    But insurance is only part of an effective plan to mitigate the
    risk of natural disaster. Other things you can do are:

    • In a flood-prone area, elevate your machinery and utility
      systems above potential flooding areas in the building.

    • In an earthquake-prone area, secure desktop equipment, such
      as cash registers and computers, with heavy-duty Velcro, bolts
      or straps to prevent them from falling if a quake occurs.
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  • In a hurricane-prone area, install storm shutters over all
    windows that might be broken in a storm.

  • Encourage the formation of community mitigation programs aimed
    at reduction of risk to local infrastructures, such as roads,
    bridges, electricity and water. If these infrastructures are damaged
    during a flood, earthquake or hurricane, the operation of your
    shop could be directly affected.

    Developing a Contingency Plan

    In addition to establishing the proper insurance types and coverage
    levels for your body shop, you should develop a contingency plan
    to help you work through any disasters that might strike. Granted,
    it’s difficult to take time out of your day-to-day responsibilities
    to do this, but it’s time well-spent; developing a good contingency
    plan is vital. Even if it’s just a matter of getting a brief bullet-point
    plan on paper, you need to go through the process.

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    As you work on your plan, assume the worst: What would happen
    if the facility in which you operate and all its contents were
    completely destroyed? While you might not lose everything in a
    fire, flood or earthquake, you should assume that all is lost
    when developing the plan.

    A number of critical questions should be answered in the contingency
    plan:

    • Could you temporarily move the shop to another location? Is
      the site equipped with phone lines, data lines and other basics
      that would be needed to operate the shop?
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  • How would you evacuate your facility if a disaster (i.e. fire,
    earthquake) occurred while your shop was occupied?

  • Are there any local groups that offer assistance in disaster
    planning?

  • Are your employees properly trained in fire prevention
  • techniques?
  • Would your employees be able to extinguish a fire during work
    hours before it got out of hand? Are fire extinguishers kept on
    site? Do your employees know where the extinguishers are?

  • Is your building fire resistant? What would it cost to have
    your building equipped with sprinklers if it isn’t already? Is
    your facility equipped with a fire alarm system with a connection
    to the fire department?
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  • Does your location meet current building codes? Does it meet
    damage-resistance building codes if you’re located in a flood
    zone or an area prone to earthquakes?

  • What can be done to protect your shop machinery and computer
    equipment from flood or earthquake damage?

  • Who would you need to contact in the event a disaster strikes?
    Be sure to maintain a list of these key contacts somewhere off
    site.

  • What can you do to protect your information?

    Protecting Your Information

    A key component of your contingency plan should deal with protecting
    your information. Your equipment, paint booth supplies and even
    your building can be replaced if you’re properly insured. But,
    if you were to lose all the information used to operate your body
    shop, you’d have to start from scratch to rebuild accounts receivable
    and accounts payable agings and other critical accounting and
    sales information that helps you operate profitably.

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    If you aren’t already doing it, begin backing up your computer
    files on a regular basis. Many businesses back up files on a nightly
    basis automatically. With a manual system, files should be backed
    up on an at least a weekly basis. With the inexpensive computer
    zip drives that are available on the market today, even a manual
    backup system is easily utilized.

    "We’ve always been really religious about backing up computer
    files every night," says Jones. "We were able to recreate
    all of the current information we had after the fire."

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    But backing up the files is only half the battle when it comes
    to disaster planning. These backup records should be stored off
    site or in a very sturdy fire- and water-proof safe because they
    won’t be of any use if they, too, are destroyed in a fire or flood.

    While Jones was able to access his current files following the
    fire, his shop lost all the records he’d been saving from prior
    years because the cardboard boxes in which they were stored were
    destroyed in the fire. Says Jones, "We could have saved the
    information from prior years had we kept it in a fire-proof file."

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    You’ll also need a contingency hardware plan to run the information
    you have backed up if your computer equipment is destroyed. If
    you’re using standard PCs that could easily be ordered from a
    local supplier, then you should be OK. However, if your system
    is customized, you’ll need an alternate site to run and update
    your software.

    When Disaster Strikes

    What do you do if the unthinkable happens and you have a major
    fire, flood or earthquake that seriously damages or wipes out
    your business? You’ll need to go through a seven-step process
    to deal with the situation:

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    1. Detection – Naturally, the first step is to detect the problem
      and the cause.

    2. Reaction – Allow yourself plenty of time to react to the disaster.
      Consult your disaster recovery contingency plan before acting.

    3. Assessment – Determine what the total damages are, and make
      sure you know the full extent of the damages. Call your insurance
      agent immediately to help assess property damage. If you have
      flood or earthquake damage and corresponding insurance, contact
      the appropriate representative.

    4. Authorization – Empower your employees to respond to the disaster.
    5. Notification – Notify suppliers and customers of the disaster,
      and communicate your plans to reopen as best you can. Assure them
      that you have adequate insurance coverage and that you’ll keep
      them informed throughout the recovery process.
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  • Mobilization – If you’ve prepared a contingency plan, now
    is the time to put it to use. Begin using the alternate site or
    sites to operate and/or run your information systems. If there
    are none prearranged or if the prearranged sites were also damaged,
    seek an acceptable alternate site.

  • Restoration – Begin the long process of restoring your body
    shop to its predisaster state. If you have appropriate insurance
    coverage and a good contingency plan, you should be able to start
    down the road to recovery.

    Outside Resources

    A number of resources are available to business owners who suffer
    a disaster. First, your insurance agent is a resource. Not only
    will he be involved in the damage assessment process, he also
    can streamline your claims to ensure a timely flow of cash following
    the disaster.

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    On a similar note, you might want to consider hiring an insurance
    consultant following a disaster. Yes, this will cost you money,
    but an insurance consultant provides a professional advocate to
    help you through the difficult recovery process.

    Other business owners are also potential resources. Take Jones
    for example. His conversations with another shop owner who’d been
    through a devastating fire a few years before proved invaluable.
    "Right after the fire, I was pretty down," explains
    Jones. "I was referred to someone who had survived a fire.
    In fact, he had taken advantage of the fire.

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    "It helped to seek advice from someone who had successfully
    been through the same experience. I wouldn’t recommend a fire
    to my worst enemy, but it did allow us to redesign the building
    and layout. We were able to start over and do it right."

    The federal government also offers a number of disaster recovery
    resources, particularly for those who have suffered a natural
    disaster. It’s usually the Federal Emergency Management Agency
    (FEMA) that’s involved when a flood or earthquake of regional
    proportions strikes.

    "FEMA was very helpful in our recovery," says Russell.
    "The government wheels did roll for me. I give high marks
    for disaster assistance. If it weren’t for them, wouldn’t be
    as far along as I am now. They are very understanding because
    they’ve been through disasters before."

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    When a region of the country is declared a Federal Disaster Area
    by the president, business owners in that area also can access
    low-interest business loans from the Small Business Administration.

    Mother Nature’s Wrath

    You can’t stop a natural disaster from striking your shop. But
    – as Jones, Russell and other shop owners who have been through
    a fire, flood or earthquake have found out – the key to disaster
    recovery is to be prepared. Take the time to review your insurance
    plan. Buy flood or earthquake insurance if it’s available to you.
    Set up a disaster recovery contingency plan. And make sure you
    back up your information regularly and store it in a safe place.

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    "Our fire was devastating," says Jones, "but had
    we not been prepared, we couldn’t have recovered nearly as well
    as we have. Don’t think it can never happen to you. I found out
    it can."

    J. Tol Broome Jr. is a contributing editor to BodyShop Business.

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