Is Your Business Prepared for a Disaster?

Our office weathered a hurricane last year with absolutely no damage, but a recent severe rainstorm caused a flood and threatened to damage some equipment that is vital to our day-to-day operations. Fortunately, I was still at the office that late afternoon when the deluge streamed over the sheetrock, down the wall and onto my desk – splattering my computer, telephone and other electronics with copious amounts of water.

With some help, I was able to move everything important out of harms way and only the carpet was damaged, but those circumstances got me thinking…is my business adequately prepared in the event of a disaster? Is the plan I have in place sufficient to keep my business up and running should a flood, fire or other catastrophe occur?

According to Federal Emergency Management Agency (FEMA), 40 percent of businesses do not reopen after a disaster of any kind. Don’t let your business become a statistic – have a plan in place, just as you would for your home or family – when disaster strikes.

In this blog post, we’re sharing a checklist of steps your business needs to take to prepare for a disaster. With an appropriate plan in place, your business will be protected.

 

• Assess Your Risk. A risk assessment entails identifying potential hazards and analyzing what could happen if a hazard occurs. A thorough risk assessment can help you protect your business against most potential threats.
• Create a Written Disaster Preparedness Plan. Create a detailed plan of action specific to your business and put it in writing. Keep a copy of your plan in a safe location outside of the office.
• Share Your Disaster Preparedness Plan. Review your plan in detail with your employees. Make sure they have a copy – electronic and written – of the plan. Modify your plan as needed, and keep everyone informed of plan updates.
• Determine an Alternate Work Location. Plan for another location where core employees can conduct critical business functions in the event of a disaster.
• Have a Backup Plan in Place. Back your files up online, and store them in the cloud. Find a service that works automatically and continually in the background and transmits your protected files to offsite servers.
• Protect Your Assets. If possible, take measures to buffer your facility against natural disasters. Keep a comprehensive, current inventory of the items and equipment used in your business.
• Review Your Insurance Coverage. Have your business appraised at least every five years, and have copies of insurance policies and customer service phone numbers in a safe place. Consider getting business interruption insurance. NOTE: Flood damage requires separate coverage and is not included with typical policies.
• Don’t Become Complacent. Disasters can happen anywhere at any time, so do not assume that because it hasn’t happened that it won’t happen. Taking a proactive approach and planning for the events could make the difference between losing your business or resuming operations and being up and running in a short time frame.

 

Although this list isn’t comprehensive, it’s a good start to making sure your business is protected in the event of a disaster. The most important thing is to have a plan in place – know ahead of time what you will do if disaster strikes.

About ELEVATE Business Law

As business attorneys, we understand the importance of protecting a business in all situations – whether it be establishing a plan for a natural disaster or putting a solid legal foundation in place on which a business can grow. Our attorneys at ELEVATE are ready to help you protect your business.

Do You Mingle or Co-Mingle?

No, it doesn’t “all come from the same place anyway”!

The biggest legal implication when it comes to managing business finances is co-mingling. When a business entity is formed (LLC or corporation), it comes with a liability shield that protects your personal assets from business liabilities. To keep it in place, you must treat the business entity as separate from yourself. That’s why co-mingling is so dangerous – if you co-mingle business and personal funds or expenses, the business entity is not being treated separately from you personally.

What is Co-Mingling?

Co-mingling is evidence used to “pierce the corporate veil” – in other words, it’s used to show that you should be personally liable for your business debts and obligations.

How can co-mingling happen? Here are just some of the ways:

• You use a business check or credit card to directly pay for personal expenses.
• You use a personal check or credit card to directly pay for business expenses (more on this below.)
• You deposit client or customer checks into your personal bank account.
• You don’t document transfers between a business account and a personal account (i.e. for distributions, loan repayments, etc.).

The General Rule

The general rule to follow is: Always use business funds for business expenses and personal funds for personal expenses – and business deposits always go into the business account.

Yes, I know that some business funds need to make their way into your personal account (so you can get paid!) and, at times, some personal funds need to be used to keep the business going.

When you are paying yourself (compensation, distributions or repayments), the preferable method is to write yourself a check from the business bank account. Be sure to document the payments so that they show up accurately in your bookkeeping.

Same goes for those times when you put personal money into the business – deposit a personal check into your business bank account. And document it very carefully!

Do not get caught up in the idea of “Oh, I’ll just pay this business bill with personal money – it all comes from the same place anyway.” NO IT DOESN’T! That is the point. You and your business are not the same. You are different and separate – and you need to keep it that way.

It’s very important that you have good business bookkeeping and records. I suggest that you create protocols for yourself to follow when paying business expenses and making business deposits. The more organized you are, the healthier your business will be – and you’ll be better able to track your business progress using financial metrics (more on that in a later blog post).

The Start-Up Exception

Clients who are starting a business often ask me how to handle the funds needed for start-up costs. This is an exception to the rule above – but it’s a limited and managed exception. You can’t get a business bank account until the business entity is officially formed. In the meantime, you have expenses to pay to get the business going, so you are going to have to use your personal funds. In this situation, you need to meticulously document each expenditure so that it can be captured in the bookkeeping once the business gets going.

I recently had the pleasure of interviewing Brent Ross, CPA from Ross Hughes & Associates for our new podcast series called Elevate Your Business (launching soon!). During my interview with Brent, he had two great tips for making this easier:

#1 – Set up a new bank account (it will be a personal account) and deposit some funds (make a guess as to what you’ll need – you can always replenish). Use this bank account to pay for all start-up costs. Even though they are personal funds, they are separated from your mainstream personal funds. Then the account records can help you to reconcile your bookkeeping once you have your business set up. This is an easy way to create a record trail for your start-up costs – instead of the time consuming task of combing through all your personal bank account statements.

#2 – In addition to or instead of a separate personal bank account, you can get a separate personal credit card to use for start-up costs. It would work the same way – you pay for all start-up costs with this one credit card. The records are all there for you to capture later in your bookkeeping.

Not only does this system help you with record-keeping, but it also gets you in the habit of using a separate source of funds for business expenses. These two tips are great – and Brent had many more so you’ll need to listen to the recording!

The Rare Exception

Even after saying that you can’t co-mingle your personal funds with your business funds, I know there are rare times when you have to pay a business expense with personal funds. For whatever reason, this does happen. You just need to make sure that it is RARE and when you do it, you fully document it. It needs to appear in your business bookkeeping in one way or another – as a reimbursable expense or as a capital contribution.

Do not set up business procedures to regularly pay business expenses with a personal account (bank or credit). This is a sure way to get caught up with co-mingling. If you need to pay with a credit card, get a business credit card for those types of purchases.

Bottom Line = Do business mingling all you want, but NEVER co-mingle!

About Elevate: Small Business + Technology Law
At Elevate, we are dedicated to bringing quality information to small business owners. In the Elevate Your Business Podcast series, we interview business advisors from different industries and record their most important tips for small business owners.

This blog post is offered for informational purposes only and is specific to Florida law. For specific advice, please contact a business attorney and discuss your particular needs.