The statistics are startling: 80% of U.S. businesses fail within the first two years. If you ask any business owner why they’re still standing after a year or two, they’ll tell you that there’s no shortage of good ideas in the world. Still, it takes a lot more than a good idea to grow a business. It takes a great deal of planning and preparation.

Here’s what few people realize about the most common emergencies that threaten small businesses:

Most Small Businesses Don’t Have a Plan in Place.

The truth is that most small businesses are two steps removed from a disaster if they even think about it at all. Small businesses must prepare for emergencies to avert serious harm to their cash flow and production. How can you ensure your company’s preparedness?

First, identify an emergency response team to handle crises. Any business interested in developing a disaster plan should have a first responder who’s prepared to take immediate action and make decisions in the event of a disaster. Ideally, this team member will have some prior experience handling similar scenarios to act quickly without having time to seek approval from higher-ups.

In some cases, your response team may not need to take action at all. They should be ready to react quickly to potential disasters, such as earthquakes, power outages and storms, but they might not need to spring into action immediately. In other cases—an outbreak of infectious disease, for example—your response team should make quick decisions so you can pre-empt further infection and keep employees safe.

 Most Don’t Have Adequate Insurance Coverage for Losses.

 In a March 2017 survey, 85% of small business owners reported they do not have an emergency preparedness plan in place. This shows that small businesses (1-500 employees) may be vulnerable to emergency events. Small business owners could be held liable for any losses or damages during an emergency and fall behind on payroll without a plan in place.

They Often Don’t Have Access to the Cash Needed To Recover From Disasters.

That’s why having an emergency cash fund is essential for every small business owner. But what if you’re the owner and you don’t have the cash needed to keep the doors open during an emergency? 

For those who rely on credit cards or loans from family or friends to get them through, it can be a vicious cycle that may result in bankruptcy, not just for the business but also for the owner. Here are two simple steps that anyone can take to ensure that their business is prepared for the next emergency:

Make sure you have enough cash on hand to survive at least three months without any income. Three months is a nice round number, but it will depend on your particular business and situation.

For example, if you have ongoing expenses such as a mortgage, a car payment or child support, your emergency reserve could be as much as six months of living expenses. If you live paycheck to paycheck, then you might need to set your emergency reserve at no less than two months of living expenses.

– Create a savings account specifically for your emergency fund, and deposit at least three months of cash into it each year. This is not the same thing as your regular savings account. Set up automatic transfers from your checking account into this special account so that it builds up over time.

Final Remarks

We’ve all seen the images of the damage and destruction left behind when a hurricane hits the East Coast; floods occur in major cities, or wildfires sweep across the West. People’s homes and businesses are destroyed many times in minutes. 

These are just three important and often overlooked facts in a new white paper from the Small Business Administration that focuses on small business preparedness during emergencies. Here’s how to prepare your business for both everyday and major emergencies:

Prepare Your Business for Everyday Emergencies

1. Stay in touch with your bank and credit card companies so you’ll know how to protect your business if accounts are frozen, or there’s a disruption in the flow of funds.

2. Be aware of your risk management plan at all times and keep it current. Review your insurance to see what type of coverage you have. Your insurance policy may not cover the full risk of losses during an emergency event. It is important to understand the type of coverage your business has and determine the gaps. Now is the time to review the insurance paperwork and determine if you need to add new coverages.

3. Have an emergency kit with items such as a flashlight with new batteries or a battery-operated lamp, nonperishable food and bottled water, matches, first aid kit (e.g. sam chest seals) and any medications needed by employees or customers. Contact your local Red Cross chapter or fire department to determine if you are eligible for a discount on first aid or emergency shelter kit.

4. Develop a family communication plan so you can stay in touch during an emergency. The best way to prepare your small business for an unforeseen event is to develop a family communication plan.

With this plan, you can prepare the skills and information needed to keep your family and employees safe and informed. In case of an emergency, family members will know how to contact each other, where meeting places are located and if their loved ones need assistance.

You can use a plan for larger emergencies that have a greater risk of creating damage, such as tornadoes, blizzards, blazes, hurricanes and tsunamis.

5. Have a list of emergency phone numbers, including local police departments, fire departments and hospitals.

6. Give your employees the information they need to succeed over the next few days and weeks so you can focus on recovering as quickly as possible from any emergency.

7. Set up an offsite or alternative location where your employees can convene after an evacuation. Ensure they know where to go if they get separated in the chaos.

8. Be familiar with various cost-effective options for your business’s fire suppression. Setting up for success with fire extinguishers is a critically important part of keeping your business safe and ready for the next emergency.