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Home Work I

Economics of Disaster

Kartheek Vadlapatla1278272

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Impact on U.S. Small Business of natural and man-made disasters

Introduction

Every year, small businesses across the United States suffer major losses as a direct consequence

of earthquakes, severe storms, flooding, and other natural hazard events. The losses they suffer

are usually understated because the typical yardsticks for measuring loss are estimates of insured

losses made by insurance firms and estimates by government of damage to public infrastructure.

Typically, loss estimates exclude losses borne by owners, uninsured business interruption losses,

income lost during post-event recovery, and losses to owners capital assets when businesses fail

as a direct result of the event. Small business failures are significant losses for communities of

all sizes. Small businesses are big employers in most communities, but the losses caused by

disasters often result in these organizations permanently closing their doors.

Why small business are important?

Small business is a major contributor to the economy, but the economic role of small business

has not always been seen as important by economists. The role of small business in the growthof the economy is not always evident day-to-day and week-to-week. The small business job-

related statistics, though impressive, tell little of the dynamic nature of the small business

process. In the following paragraphs, we discuss the role of small business in creating and

providing jobs. We also review the role of small business as the social glue of the community

and the significance and implications of these roles to the disaster recovery process.

Providing Jobs. Small business consistently provides more than one-half of the total employment

in the United States and is responsible for creating an even greater percentage of new jobs.

Other Small Business Roles. Small businesses do contribute more than employment and new jobsto the economy and the community. They provide the entrepreneurial spirit that drives

innovation and change in local, regional, and national economies. Also, small businesses provide

the means by which millions of people enter the economic and social mainstream of American

society. Collectively, small businesses provide about 67 percent of all initial job opportunities

and are responsible for most of the initial on-the-job

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Things that hinder Disaster Recovery of small business

Often disasters result in business disorientation and environmental detachment. This

psychological trauma of key decision-makers leads to company inflexibility to deal with the

change required to move forward. Post-traumatic stress disorder can cripple your decision-

making ability. But putting off the decision to reopen or close your business can be disabling. A

small business has limited cash and resources, starting up the business quickly once the decision

is made can help your survival rate. It's vital for small business owners involved in disaster

recovery to get outside views and help to accurately assess the situation and provide clarity. Take

advantage of available small business assistance such as SCORE. Small business may have to

depend on other forms of financial help such as savings or friends and family.

Factors to be Consider in Disaster Recovery

Disaster Preparedness:

Small businesses who have taken the time to establish a business continuity or disaster recovery

plan will be better prepared to rebuild than a business that was ill-prepared. If your business

wasn't ready for the disaster, all is not lost. Documents and important business data can be

restored in time by working with your accountant, the tax department, and any other public

records department.

Disaster Preparations for small business:

The five steps in developing a preparedness program are:

1. Program Management

Organize, develop and administer your preparedness program

Identify regulations that establish minimum requirements for your program

2. Planning

Gather information about hazards and assess risks

Conduct a business impact analysis (BIA)

Examine ways to prevent hazards and reduce risks

3. Implementation

Write a preparedness plan addressing:

Resource management

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Emergency response

Crisis communications

Business continuity

Information technology

Employee assistance Incident management

Training

4. Testing and Exercises

Test and evaluate your plan

Define different types of exercises

Learn how to conduct exercises

Use exercise results to evaluate the effectiveness of the plan

5.

Program Improvement

Identify when the preparedness program needs to be reviewed

Discover methods to evaluate the preparedness program

Utilize the review to make necessary changes and plan improvements

Damage Assessment

Before you can decide what to do with your company, you'll have to take an assessment of the

damage done to your business. Look at the costs of the damages and what it will take to rebuild.

Estimate the replacement or market value costs to replace damaged aspects of your business

operation. Disaster recovery will be more challenging for small businesses with large inventory

losses. Contact your insurance agent to calculate what and how much will be covered. Get a

picture of how much you will have to reinvest in the business as well as factoring in the

interruption to cash flow. Determine what you'll receive for business interruption insurance from

your agent.

Market Reach

After a disaster, the market will take time to reestablish itself. With no need for certain goods

and services for some time, you must consider what alternatives exist. International, national,

and regional business will have a much easier time rebuilding following a major disaster thanlocal businesses. Businesses reliant on heavy foot traffic will have greater challenges in

rebuilding. Can your business reach out to new markets unaffected by the disaster or provide

goods or services to help in disaster recovery for the community?

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Customer Spending

Rebuilding efforts following a disaster can be an economic gain for certain businesses

participating in the rebuilding. Certain industries and sectors will have an easier time gaining new

business. Essential businesses in a disaster zone such as grocery, medical, and construction will

be in high demand. If customers are greatly impacted by the disaster, they may have very little

need or money for your service or product. Think of how the disaster will affect your customers

spending habits.

Financial Position

Vital to any critical decision making to reopen your business is determining your financial

position. What is your current financial picture? What amount of money will you need to make

your business operational? Are you eligible for SBA disaster loans and other forms of assistance?

If you have insurance; what will be covered and how much? These questions must be answered

before moving forward. Disaster recovery will be more difficult for businesses experiencing

financial difficulty prior to the disaster.

Tax Relief

Small business impacted by a disaster might be eligible for tax breaks from the IRS to offset losses,

especially if you live in a presidential declared disaster area. Options include claim casualty losses,

deferred gains for qualified replacement property, and tax extensions. Contact the IRS for current

and full information as well as your accounting professional.

Franchise Businesses

Recovering from a disaster for small business is in part, dependent on the level of support andfinancing available. Franchise businesses and chains have a better chance of disaster recovery

given the level of support and financing available from the franchisor.

Network Communication

To make the best decision to move your business forward, you must have a grasp of how the

disaster has impacted those connected to your business. Call suppliers, employees, and

customers to inform them of your situation. Many will offer support or alternatives for you to

consider. Manufacturers might be able to ship directly to your customers or suppliers can assist

in payment schedules. Knowing these options exist for your small business can help in making

the final decision. There are many considerations in deciding what to do with your small business

pending a disaster. In the end, the small business owner who carefully considers their options

enlists the support of available resources, and makes new business operating plans will be closer

to ensuring the survivability of their business after a devastating disaster.

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References

http://sbinformation.about.com/od/disastermanagement/a/disasterrecover.htm

http://smallbusiness.foxbusiness.com/entrepreneurs/2013/09/23/7-ways-to-protect-your-

business-from-disaster/

http://ispub.com/IJRDM/7/2/11721

http://www.sba.gov/content/disaster-planning

http://www.411sbfacts.com/sbpoll.php?POLLID=0023

http://sbinformation.about.com/od/disastermanagement/a/disasterrecover.htmhttp://sbinformation.about.com/od/disastermanagement/a/disasterrecover.htmhttp://smallbusiness.foxbusiness.com/entrepreneurs/2013/09/23/7-ways-to-protect-your-business-from-disaster/http://smallbusiness.foxbusiness.com/entrepreneurs/2013/09/23/7-ways-to-protect-your-business-from-disaster/http://smallbusiness.foxbusiness.com/entrepreneurs/2013/09/23/7-ways-to-protect-your-business-from-disaster/http://ispub.com/IJRDM/7/2/11721http://ispub.com/IJRDM/7/2/11721http://www.sba.gov/content/disaster-planninghttp://www.sba.gov/content/disaster-planninghttp://www.411sbfacts.com/sbpoll.php?POLLID=0023http://www.411sbfacts.com/sbpoll.php?POLLID=0023http://www.411sbfacts.com/sbpoll.php?POLLID=0023http://www.sba.gov/content/disaster-planninghttp://ispub.com/IJRDM/7/2/11721http://smallbusiness.foxbusiness.com/entrepreneurs/2013/09/23/7-ways-to-protect-your-business-from-disaster/http://smallbusiness.foxbusiness.com/entrepreneurs/2013/09/23/7-ways-to-protect-your-business-from-disaster/http://sbinformation.about.com/od/disastermanagement/a/disasterrecover.htm