Can Weather Wreck Your Small Business?

Small businesses and entrepreneurs are not as likely as larger businesses to look at “weather” as a risk factor when considering the hazards of their businesses and as a result, tend to shut down after a weather disaster.  A recent article in the Harvard Business Review said that while businesses are more affected by weather such as severe flooding and snow storms, many entrepreneurs put off investing in the risk management as compared to their larger business counterparts.

“The frequency and severity of disasters will continue to increase due to more volatile weather, rising sea levels, and increasing urbanization,” the Harvard Business Review article states.  U.S. Census data reports that small businesses were more likely than the average business to close permanently after such disasters as Hurricane Katrina.

One of the main issues is that many start-ups and small businesses do not invest the time to research and apply for insurance – as many do not feel that “weather” is a main hurdle to their livelihoods as they struggle with competitors, suppliers, finances and other business issues.  The Harvard Business Review article reported that while many entrepreneurs are not inclined allocate the time or capital necessary to secure adequate storm insurance.  In the event of a natural disaster or even a storm with an adverse impact, emergency working capital solutions are available.

The Harvard Business Review article surveyed small businesses one year after Hurricane Sandy to better understand this why small businesses tend to close after a weather disaster and the three main findings were the following:

• Not insured:  Many small businesses do not have storm insurance – those firms five years and younger were uninsured.
• Applying for credit (which hurts credit history):  Many small businesses will apply for credit to save their businesses but often their overall credit is affected.
• Entrepreneurs reported that their interest rates for borrowing increased after disasters.

Small businesses and start-ups have always been considered vital to the economy of most communities and when a large majority in a neighborhood close after inclement weather, the whole economy of the region is affected.  A small business is defined as a business (corporation, limited liability company or proprietorship) with 500 employees or less. According to the U.S. Small Business Administration (SBA), small businesses represent 99.7 percent of all employer firms. Since 1995, small businesses have generated 64 percent of new jobs, and paid 44 percent of the total United States private payroll, according to the SBA.

According to a recent Report, In New York State, small businesses provide nearly 3.9 million jobs in New York, representing over half of all private sector employment, generating total payroll of almost $190 billion annually.

In New York, business with fewer than 100 employees generate more than 2.7 million jobs, with payrolls totaling nearly $127 billion a year.