Creating a Company Fire Drill: How to Prepare for the Worst

The phone rang at 1:37 a.m. It was the central alarm system at our office. The operator told us there was a fire.

When we arrived, the apartment building next door was fully engulfed, and the fire had jumped onto our roof. We stood there helplessly watching as the building we worked in for 30 years burned. The next morning, we called our team with the news, and one of our designers asked if she could get personal items from her desk. I had to tell her that she no longer had a desk.

When the Unexpected Happens

I’m sure all of you have been in circumstances you didn’t see coming. Maybe it was a loss that changed your life or an unexpected medical event. I’ve used unexpected events in my own personal life to create tools for navigating periods when life and/or business feels like it is spinning out of control.

My system is called The 5C Solution: Clarity, Commitment, Challenges, Creation, Celebrate. My book, “The 5C Solution: Discover Clarity & Confidence in Times of Change,” delves into how to use this system, and is available on Amazon.

Using The 5C’s, we will first get Clarity on the “what ifs” you need to protect your business from. These are threats that people often don’t think about. Please keep in mind that I’m not an attorney or an insurance professional; I’m just summarizing the precautions that we put in place over the last 45 years to protect our company.

Clarity

1. Building Ownership. This is important in cases of natural disasters, theft, riots, and even maintenance costs. The business owner should have a separate real estate LLC that owns the building, and the business then pays rent to the LLC. This protects the owner from liability. Make sure there are no gray lines between the business and the building.

2. Safety. Our fire happened at night, but what if it occurred during the day? Remember school fire drills? You need them at work too.

3. Economy. During the recession of 2008, we had to lay off half our team in a few short months. Today, we watch the economy, talk to other remodelers around the country, and prepare for what we would do if that happened again. The reverse is true as well. During the pandemic, our phone rang off the hook. Should we hire more workers to keep up? Should we make people wait longer? Having plans ahead of both scenarios helps make change easier.

4. Cyber Attacks. A few years ago, a scammer breached our system and tried to con our bookkeeper into emailing out gift cards. It almost worked. According to Verizon, 82% of ransom- ware attacks in 2021 were against businesses with fewer than 1,000 employees, yet just 17% of small busi- nesses have cyber insurance. About 13 years ago, our system was hijacked and held for ransom. Our business came to a halt. We had no protection then and had to pay the ransom. Fortunately, our files were restored, but we immediately purchased cyber security insurance.

5. Competition. This includes intellectual trademarks, patents, and copyrights. Years ago, we had a project manager leave to start his own company, which he said would be doing work different from ours. Then a potential client brought an estimate in from this new competitor. It was on our proprietary estimating program. My husband went to his office, and the place was covered with photos of our finished projects. My husband called our attorney.

6. Finances. During COVID, we were shut down for two weeks but continued to pay our team from our emergency funds. We didn’t know how long the shutdown would be, however, we saved enough to pay our team for several months if needed. Those funds were not in the company. We have a sweep account that moves money from working capital to investments outside the company, so if you get sued, you have a limited amount in the business.

7. Paper Files. Can you imagine having financials, client records, or designs in paper files and then being hit with a major flood or fire? Two years before our fire, we cleaned out many years of paper client files, had them scanned, and then stored them at a local DocuVault  facility. These are essential  for warranty calls and past client contact information. Consider placing everything in a computer system and backing it up.

8. Insurances. Whenever I looked at our expenses, I would groan at the insurance we pay. It’s tempting to cut back. After all, what are the chances of something happening? To that end, you need a good insurance broker to show you where your exposure is and help with coverage.

Here are the insurances we carry: 

Business Continuation Insurance: After our fire, this reimbursed us for the time spent fitting out the new location, renting office furniture, a warehouse, IT for setting up our computers, and even revenue lost due to our fire.

Employment Practices Liability Insurance (EPLI): Only about 3% of businesses with fewer than 50 employees carry this, yet the average settlement for discrimination, wrongful termination, harassment, or failure to promote is anywhere between $50,000 to $300,000. It provides a hotline for questions, and HR calls every time someone leaves to make sure all our files are complete. It also offers free safety seminars and field safety inspections on jobsites.

We also carry Auto Insurance, which we shop yearly; Workers’ Compensation; Professional Liability; Personal Property and Computer Hardware Coverage; Business Income Exposure (this includes loss of wages, moving expenses, temporary office space); Liability Umbrella; Catastrophe Insurance; and Pollution Policy (Air quality in client’s homes, hidden oil tanks, etc.).

9. Team Members. What if the owner or a manager becomes disabled or dies? Disability Insurance, Long-Term Care Insurance, and Life Insurance are key.

For the wives of owners: take a competitive wage! Your income affects your Social Security payments when you retire. If you are not paid a competitive wage, it will hurt you later. Your business also needs a long-term business plan for three, five, 10, 20, and 30 years. This is for your security and for your team. They want to know the security of their career or they will go elsewhere. Other areas where we are prepared in terms of our team include: Owner Exit Strategy and Personal Estate Plan: Don’t wait until time creeps up on you (and it will).

Employee Handbook: To protect your business from being sued or intellectual property being stolen. Update your Employee Handbook regularly. Also, consult your attorney for new laws (such as the legalization of cannabis in N.J.) and update the handbook accordingly. Document all tasks of each role and cross-train your team members. This will prevent panic if someone leaves.

Commit to Preparation

Commitment means being dedicated and focused on a cause. Even if one of these situations came up, it could cost you or your company. As soon as you commit, life will throw you a curve.

Challenges

The challenges are mostly in your own mind. “There’s no time,” “It costs too much,” and so on. But the truth is that it costs a lot more not to be protected.

Create a Team

This includes a lawyer, accountant, insurance broker, financial planner, and management board.

Celebrate

Reward yourself and your team for taking this action. Expect the unexpected.

Plans don’t mean you know what will happen. But plans help you get back on track when the unexpected occurs because they will be thought out in times of logic instead of emotion.