Recovery efforts continue after hurricanes battered Texas, Florida, Puerto Rico and other areas in October. Natural disasters can have a big impact on business operation, which in turn has cascading implications for local, state and national economies.
FEMA has cited that almost 40% of small businesses never reopen their doors following a disaster because just a few inches of water can cause tens of thousands of dollars in damage. FEMA also identifies the value of preparedness and the resources that businesses can use to reduce the impact and financial damages that follow catastrophic events and return more quickly to normal operations with nominal effect to the revenue stream.
I found in the Louisiana Back to Business Workshops conducted by the Department of Homeland Security, Private Sector Office in 2006 that the most common obstacle cited by recovering businesses was the lack of financial capital. The results also showed that delays from insurance companies and the U.S. Small Business Administration also made it difficult for small businesses to find enough money to make repairs and restore operations. Some firms that were fortunate to be awarded loans were sometimes not eager to accept them due to the uncertain future of the business climate.
The issue of the availability of financial capital is probably the most critical issue as shown in the following hypothetical example. Let’s say that for any given month, a company will be spending money on rent, labor, utilities, property taxes, interest on goods, etc. The same company will be receiving money from its customers who will be purchasing their goods and services. The company, after incurring these expenses, is assumed to be making a net profit. But after a hurricane or another calamitous event, the business will be closed. Consequently, the company would be spending capital but not receiving any money. Every day that this occurs, the owner will have to dip into his/her reserve capital to pay these expenses.
This scenario can only go on for a short period of time until the company reaches its tipping point. The tipping point in economics is the critical point in an evolving situation that will result in a new and irreversible development. It may also be called a turning point, at which time the business may never be able to open again.
But there does not have to be a tipping point. The businesswoman in the linked article was able to clean up her business and begin operating on Saturday, September 2—just three days after water was up to her calves. According to the article, her family and store workers were tirelessly cleaning the place using mops, towels and whatever they could find. The Huffington Post reported that no other businesses in the immediate area had opened and that customers had already started to return. This is an example, from an income perspective, of where the businesswoman was incurring expenses of not being open and needed to solve her revenue problem quickly.
We saw the issue from a different perspective in Puerto Rico of how Hurricane Maria affected the availability of electricity. Numerous automated teller machines were and are still not able to operate, preventing people from obtaining the cash they need to conduct transactions. This problem is similar to the issue in Houston but from a slightly different perspective. The Houston businessperson identified above was ready to operate before most everyone was. In Puerto Rico, even if she had opened for business, she probably would not have been able to conduct the business that she was ready to do.
Both examples demonstrate the ramifications of not being ready and how the value of preparedness can affect the day-to-day operations of one’s businesses. We need to advocate the notion of being prepared because, at a minimum, those companies that are open and ready to do business have a competitive advantage over those that are not.