Some weather disasters strike suddenly, others after hours of warnings.
Either way, auto dealerships and other businesses can take steps to prepare and fortify their properties, with a goal of minimizing potential damages, such as the hurricanes that recently hit the East and the tornados that stormed through the heartland this year.
Planning for disasters involves three steps: preparation, testing, and recovery.
Disaster preparedness aims to keep employees safe, protect essential equipment and inventory, safeguard vital electronic and physical documents and ensure business continuation.
To this end, dealerships should constantly evaluate and quantify infrastructure investments across every department.
Starting at least several months before insurance policies' annual renewal dates, dealership management should review policies to ensure coverage has kept pace with exposure.
That review should be extensive for property and casualty policies and for business interruption insurance.
Business-interruption insurance, often called business-income insurance, provides money to a policyholder with claims for a pre-designated period to replace lost revenue and pay employees when a business is shut down.
Dealerships should study such policies to be certain of what damages are covered. Business interruption coverage usually only applies to on-site damages from wind, fire and other specific perils.
Business-interruption policies and many property and casualty policies do not cover flood damage. The National Flood Insurance Program includes the option of buying business interruption coverage for flood damage.
Many business-interruption policies do not pay claims when a business is shut due to off-site events, such as electrical damage when a hurricane knocks down power lines.
In some states, many insurance companies do not include coverage for hurricane or earthquake damage as part of standard property insurance policies. Businesses and homeowners can usually obtain separate policies.
The preparation stage also should include daily electronic backups of important documents, files and databases. Dealerships should make copies of those records and store them in an off-site, physically secure facility. Articles of incorporation, accounts receivable, client records and important personnel and administrative documents should be among the priorities for back-up.
Physical preparations should include having enough generators — and the necessary gas — to operate the office and other facilities if electricity is off after a storm or other disaster.
Dealerships also should have an employee communications plan. This starts with each employee having a list of everyone else's addresses, home phone and cell phone numbers. A call system should be established, with department heads and other supervisors calling designated employees to find out if their homes suffered damage and if they need any assistance.
Other key preparation issues include:
Credit. Because insurance payments can be delayed, it is important to maintain a sufficient line of credit for business continuation.
Tax Issues. Depending on the magnitude of the disaster, federal aid may be available in the form of tax breaks at the end of the year. Thus, it is critical to stay up-to-date on tax policy changes.
- Test Plan
A dealership should conduct a dry run of the process for backing up computer files. This will reveal the amount of time it would take to duplicate files under emergency conditions.
Testing the employee-communications system can uncover areas of vulnerability, including incomplete phone lists and problems with equipment.
If a dealership finds potential problems, it should consider setting up an out-of-state toll-free number that employees and clients can call for updated information.
A walk-through of the facility during the days when a hurricane is approaching might reveal the need to move some vehicles from areas near high trees or from areas prone to flooding. Doing that can reduce insurance claims.
Dealerships should consider reviewing disaster situations with banks to verify the reliability of credit and withdrawal requests.
Most of the testing can be simulated, and critical aspects can be checked without mimicking all the conditions of a disaster.
Recovery involves rebuilding the physical structures and rebuilding the financial structure.
By combining traditional accounting practices and investigative techniques, forensic accounting can provide a disaster-stricken dealership an advantage when legal disputes arise and original documents are lost.
By recreating documentation, forensic accounting can help decipher the true value of property and help rebuild.
Dealerships that plan for the worst can help minimize the impact of the power going off, the walls coming down and the computer systems failing.
Sometimes all at once.