Could Your Small Business Ride Out Katrina?

According to the Disaster Research Center at the University of Delaware, the chances are, it wouldn’t. In a study of 1,000 businesses following the Northridge, Calif. earthquake in 1994, when disaster hits a community, younger, smaller and independent businesses have the least chance of surviving.

This finding is corroborated by Judy Berger, office manager at the Chamber of Commerce in Homestead, Fla., where 82,000 businesses were damaged or destroyed by hurricane Andrew in 1992. She claims it was the smaller mom and pop type businesses that did not rebuild.

Yet some small, young businesses do survive, though they are at a great disadvantage when compared with larger competitors. Franchise businesses and long-established, profitable businesses are more likely not only to have access to capital for rebuilding, but to have invested in hazard insurance and planned emergency inventory strategies as well.

To survive, a small business must be capable of surviving temporary cash flow stoppages and have enough business assets to secure financing when customers´ lives are disrupted, but not entirely removed, from the city. The three biggest relief organizations for business owners are the Small Business Administration, Federal Emergency Management Agency and Internal Revenue Service. SBA low interest loans are specifically only available to small business owners who do not have the capacity to borrow elsewhere.

A small business owner and Northridge, Calif. earthquake surviver, Wayne Adelstein is now president of the North Valley Regional Chamber of Commerce in Northridge. He claims, “the same elements that drive entrepreneurs to start a business in the first place will determine if they continue after a disaster.”

In Northridge, the federal government came through working one on one with small businesses and the Valley Economic Development Center to rebuild and reopen. This federal assistance is essential for small business owners who often get their business equity from their homes. When homes are destroyed, it can be a start from scratch game for small business.

Small Business Association administrator Hector V. Barreto says they are ready to provide immediate assistance in hurricane areas. “SBA has always had a strong commitment to disaster victims. To show our continued commitment to hurricane victims, SBA will have loan officers in every federal/state disaster recovery center that is opened,” Barreto said. This help comes in the form of low interest loans for physical business damage, impact of economic injury, and in some cases, help in relocating.

Adelstein’s own business was wiped out by the earthquake, and “it took 10 years to rebuild the business to the level we were at before the quake.” He added that businesses have to look around at the new environment to make their decision. “In the case of the Northridge earthquake, the infrastructure was still there.” Major employers such as the entertainment industry and the university, although heavily damaged by the earthquake, continued to employ people, providing income for consumers to spend at small businesses.

University of Wisconsin-Green Bay researchers in the Center for Organizational Studies believe that too many businesses reopen too soon without considering all their options, such as reopen, close, relocate or sell. They want small business owners to consider that the number one factor that will determine their success, post-disaster, is what has happened to their customer base. In the case of Katrina, one challenge is that customers and tourists will not be able to return for an indefinite period of time.

A restaurant owner in New Orleans, who reopened immediately after Katrina, was asked by a FOX news reporter how his business would thrive without the tourists. His answer was, “It won’t be about the money for a while. It will be about rebuilding New Orleans.” Not every small business owner will have the financial resources to take on this attitude.