I've suffered through a string of disasters over the past year: My softball team is having another winless season. The local Vinny T's shut down. My 16-year-old old son just got his learner's permit. And, of course, Shrek 4. This year's been tough.
Very tough.
As bad as this year's been for me, I'm not getting a lot of sympathy from Mondale Smith. He's a loss control manager for American Family Insurance, an 80-year-old provider of commercial and personal insurance coverage. Mondale's job is dealing with his customers' disasters.
I'm told by Mondale that a few other people have been dealing with disasters of their own. There were devastating earthquakes in Haiti, Chile and China. There have been strong tornados tearing up homes and businesses in the Midwest and torrential floods in Tennessee and Pakistan. Look, I don't want to appear unsympathetic, but listen people: Nip/Tuck was cancelled. Do you really think that kind of tragedy compares to a few drops of water and a little shaking of the ground?
Of course, I'm just kidding. Nip/Tuck wasn't that great a show anyway. And the natural disasters so many people have lived through this year are terrible. And the devastating oil spill in the Gulf has affected thousands of small businesses.
I spoke to Mondale recently. He's never watched Nip/Tuck and he had no help to offer me or my softball team. But he did have some thoughts on how business owners like myself can protect themselves if a disaster were to befall them.
"For starters," he told me, "check out your competition. Or your neighbor."
Mondale says that smart penny-pinchers are always making sure they're keeping up with the other guy. If you're operating a gift shop down the Jersey Shore, you're probably raking in the dough selling those Snooki t-shirts. But what kind of business interruption insurance do you have if the weather turns south (or Snooki loses her 15 minutes of fame)? More important, what kind of business interruption policy does the guy next door have? If you're running a landscaping firm in Phoenix, what does your competitor on the other side of town do to make sure he's covered in case of a natural disaster? Different regions are subject to different disasters. A coastal business has to worry about flooding and (now we know) oil spills. A business that relies on tourists has to think about weather and terrorism. That bakery near Oprah's house in Chicago has to seriously worry when she decides to move to the West Coast.
Disaster insurance is nothing new. And neither is running a small business. Mondale tells his customers to talk to their competitors at trade shows or reach out to their industry groups. He suggests they consult their local Chamber of Commerce, query other insurance agents and cold-call people in the same line of business to find out what kind of coverage they carry in case of a disaster.
Although American Family has a long record of paying out claims when they occur, they're in the business to make money. Insurance companies like theirs would rather not pay anything out if they can avoid it. To that end, Mondale advises his clients to consider insurance as the very last resort. "Insurance is not a profit exercise," he said. "It's there as a safety blanket if everything else fails."
So he tells his clients to always think ahead to what disasters could befall them and what they would do about it if bad things happened. Do they have a generator for alternate electricity? If they're in the restaurant business, do they have a backup gas line? Is there another source of supply if a key vendor goes down? Do they Tivo Glee on both the upstairs and downstairs TVs, just in case? These disasters must be thought through in advance and a plan should be in place to address them. Before the insurance kicks in.
Separate your business assets too, Mondale tells me. Have a safety deposit box in another secure location for important documents and valuables. Back up your company data offsite or use inexpensive online services like Mozy.com or Carbonite.com. Ship your financial documents, like invoices and cancelled checks, to a storage facility far away. Hide that bag of weed left over from that final Grateful Dead tour in the back of your closet so your kids don't find it. Don't worry - it'll keep until that night when they're all sleeping at grandma's.
A good insurance agent will help too. Mondale's title is "loss control manager." He doesn't like it when his customers lose money any more than they do. His agents are encouraged to proactively meet with their customers, walk around their facilities, interview their people, look at their financial operations and drink their coffee. They make recommendations for diversifying inventory, improving infrastructure and protecting their businesses against harsh weather. They look at the coverages and suggest the right amount, not the most they can sell. This is what good agents do. Does this sound like your guy? It definitely doesn't sound like my guy ... except for the coffee part. Excuse me while I make a few calls.
Should a penny-pincher carry a high deductible or a low deductible? Of course, it depends on the company, but Mondale tells me he sees many of his clients carrying the higher option. It reduces the premiums they have to pay and puts more responsibility on them to cover the first chunk of damages they may incur. "I always tell these customers to just make sure they've got enough in the bank to cover this deductible if something really bad happens," he tells me. Carrying a higher deductible is definitely a risk. Not as risky as spending a weekend in Aspen with Charlie Sheen. But you're taking a chance. Most penny-pinchers do. Just make sure you've got reserves somewhere.
Is there an upside to the disasters that have affected so many people this year? Mondale believes there is. "Those companies that were prepared will ultimately survive," he says. "And those that weren't ... won't."
To the victor remain the spoils. Business owners who don't think ahead wind up going out of business. And who grabs their customers? Smart penny-pinchers who plan ahead. They ride out the storm and expand their business when the worst is over.
That's because things always come back. Don't believe me? Just ask Betty White.
Gene Marks, CPA, runs a 10-person technology consulting firm in Bala Cynwyd, Pa. His latest book is In God We Trust, All Others Pay Cash: Simple Lessons from Smart Business People.
