With the recent hurricanes and wildfires, CNBC reported from FEMA that 40% of small businesses never reopen after a disaster. In fact, a CNBC and SurveyMonkey survey found that most small businesses owners do not consider the environment as a factor to the future of their business. The unfortunate truth is that some of these natural disasters aren't predictable so it's no surprise that entrepreneurs aren't thinking about them. While there are plenty of disaster recovery technology solutions to keep your business open, our focus will be on the safety of your accounting records.
Here are steps to keep your accounting records safe during natural or unplanned disasters.
DISASTER RECOVERY FOR SMALL BUSINESS ACCOUNTING
Why Small Businesses Are at Risk
Small business owners and entrepreneurs are especially at risk during disruptive events because they may not have established processes or protocols for record keeping. Even beyond accounting and customer records, a small business can be ruined if they are selling goods that could be destroyed by fires, floods, or storms. Perception of the event from the point of customers is also something to consider. If customers believe that a company will have an extended period of downtime, their needs may take precedence over the business relationship. A solid continuity and preparedness plan should evaluate the risk and impact of potential disasters on the business, employees, and customers and include good record keeping, and insurance.
Which Records Are Important?
Planning ahead is crucial to the success of any business after a natural disaster. The first step is to identify records that are necessary to keep the business running, even if the office is uninhabitable. The U.S. Small Business Administration has created a guide to help small business owners to decide which records should be kept and offers suggestions on practices for record keeping. The guide also informs the business owner of their legal responsibilities for compliance, retention, and tax preparation.
Suggested records for retention and safekeeping:
- Contracts, leases, customer information and other agreements
- Licenses, insurance information, and permits
- Payroll and personnel information
- Invoices, receivables, checks, reports and statements
- Tax returns
Steps to KEEP ACCOUNTING RECORDS SAFE
The following steps may be applicable to more than accounting records. Any important records that are applicable to the continuation of business should be kept safe.
- Store paper records securely. If you must keep paper records, invest in filing cabinets that are both fire resistant and waterproof.
- Make copies of paper records. Before filing away paper records, create a digital copy to store. Having backups of everything is suggested.
- Store records in the cloud. While you may have digital copies of paperwork and important records on your laptop, computer, or other computers in your office, consider backing up all of these records in the cloud. If you're unable to connect to a cloud device, at least back up these records to an external device and store it in a safe location, even offsite.
- Work in the cloud. If you're able to purchase cloud-based accounting software, most of your records will already be in the cloud. The good news about this is that the information will even be available through any device, not just your computer that may be damaged due to the disaster.
- Backup everything. More than one copy of records is always a good idea, especially if these records are scattered across multiple computers. Each computer should be backed up regularly to an external storage device or the cloud.
Accounting records are critical to the continuation of a small business, especially if there are outstanding payments due or accounts receivable. The continuation of a business is dependent on the continuation of customer payments.
Decide the Breaking Point
Another important decision for business owners is to decide when to shut down the company if their business is too far damaged. Planning a funeral for the business may be uncomfortable for the entrepreneur who started it but it is again necessary to plan ahead. Business owners have to know when to shut down the business and when continuity simply isn't feasible. Creating the parameters around this decision ahead of time will make the decision later much easier.
FEMA (Federal Emergency Management Agency) has suggestions for a small business business continuity plan (BCP) and offers this analysis to help determine the decision to continue or terminate the business:
- Will insurance cover the physical damages as well as loss of revenue?
- Will the business be able to operate on alternative sources to get back online?
- How long will the recovery take?
- Are there alternative survival possibilities?
- What is the cost of shutting down compared to the cost of continuity?
FEMA has also created a website for preparedness planning offering business impact plans, implementation, testing, and program improvement exercises. Click here to learn more.
No matter the size of a business, a proper record keeping system is important to the success of the company. Consider software that works in the cloud and will be available after a disruptive event such as a natural disaster. Most importantly, evaluate the risk of loss to the business and start planning now to be prepared.