Loss of business due to disasters can be like a car accident – even if we’re doing everything correctly, someone else’s mistake can still impact us.  Even a small disruption to an associated business (such as a manufacturer not getting a product to you on time) can be very frustrating, but a large- scale event can have huge consequences.

 KEY IDEA:  You must have a contingency plan for disruptions to business (other than your own) that you rely on.

• Disruption of an outside party (supplier, distributor, Internet service provider, phone or utility provider, etc.): How much would your business slow down if you could not depend on new material being delivered?  How about without your internet connection?
• Pipeline explosions and burst dams: Transportation, local businesses, and even entire communities can be disrupted depending on the severity of the event.
• Blocked routes: Is there any one main road leading to your place of business?  If people and trucks can no longer travel to your location, how will you adjust your business plan?
• Rail/water/road/air disaster: A community in chaos can put normal business on hold for an extended period of time.
• Nearby fire or explosion: You can never anticipate exactly what will happen, so your best option is to have a general plan that can help you mitigate the consequences of a short term business interruption.

In planning for someone else’s disaster, you should ask your key suppliers if they have recovery plans (and then suggest that they create one).   You should also examine your surrounding neighbourhood for nearby airports, rivers, bridges, etc. that have the potential to disrupt your business.  For example, after the tsunami in Japan, supply chains to industries all around the world were disrupted for weeks.  Hurricanes Helene and Milton crippled the eastern seaboard of the United States for months. Could your business handle that sort of event?

How Much Could You Lose?

Jun 28, 2024 · Bankruptcies increased by 7.8% and proposals increased by 1.6%. The total number of insolvencies in May 2024 was 12.3% higher than the total number of insolvencies in May 2023. Consumer insolvencies increased by 11.3%, while business insolvencies increased … Insolvency Statistics in Canada — May 2024 (Highlights)

Your complete disaster recovery plan must be included in your company’s budget, and not treated as a miscellaneous expense that is only addressed when there is money left over.  You are protecting a priceless asset – your business, your livelihood, and your future.

IMPORTANT NOTE:  Even if your company is fortunate and does not experience a disaster for several years, you must keep this item in your budget to avoid being unprepared.

One method for calculating a disaster recovery budget is to take the likelihood of an event occurring and multiply it by its potential cost.  For example, if a severe earthquake in your region would result in your business being shut down for one week, and would cost you $100,000, and you estimate that the probability of this event occurring is 20%, you’d want to allocate $20,000 per year for preparing for an earthquake.  The whole point of this budgeting technique is to give you an amount to allow per year for disaster planning.