You arrive at work one morning to find your building in flames. The fire department is doing its best to hose down the structure, but it's apparent nothing will be left. Your inventory, your equipment, your business records . . . all gone. Your employees are standing around, stunned.

This experience can happen to anyone. Fires, wind storms and power failures can strike at any time. Floods, earthquakes, hurricanes and tornados make the nation's headlines every year.

In the worst disasters, businesses fold. But financial losses can be severe even for those operations that manage to stay afloat. The loss of accounts receivable information, for example, means businesses don't know who owes them money. Customer lists may be irretrievable, putting a crimp in future earnings.

Recent disasters, and the tragic events of 9/11, have put this issue on the front burner for many business people.

"Disaster planning was once seen as an overhead and insurance situation," says Richard L. Arnold, founder of the Disaster Recovery Journal, St. Louis, which runs seminars on the topic. It's true that in many cases insurance premiums will be higher if disaster plans are not in place. But because of the severe effects that disasters can have on operations, planning for cataclysm has taken a more prominent position in the hierarchy of business priorities. Arnold continues: "In recent years there have been enough natural disasters that business owners view it as a necessity and auditors view it as prudent business planning."

So what should you do now?

"Every business owner needs a disaster recovery plan," says Arnold. "Those who don't have one need to get one. Everyone needs to ask: How long can I be down before it starts affecting my profits?"

Here's a step-by-step process for getting your own disaster recovery plan into play. Consult with your accountant and attorney to flesh out the details.

Step 1: Gather critical information

When disaster strikes, it's too late to think about gathering information from sources that have been destroyed. Now is the time to create the information resources you'll need in a time of crisis.

"You should start by putting together your databases of information," says Jeffrey Williams, president of Binomial International, a disaster planning consultancy in Ogdensburg, N.Y. "In deciding what data to include, imagine yourself trying to run your business from a phone booth. Then make a list of the contacts you will need to call."

Paramount, of course, will be the lists of customers and staff members. These may already be in a database that can be backed up; otherwise, you will need to create a file of names, addresses and phone numbers.

Once that's done, put together a list of "emergency responders." These are people you'll need to call to get your show back on the road, such as:

• Attorneys, accountants and insurance representatives;
• Service firms that can accomplish tasks such as removing water from the premises, cleaning, removing rubbish, painting, repairing electrical and plumbing systems, replacing locks and repairing and installing data processing systems;
• Real estate agencies that can assist in establishing an alternative base of operations while restorations continue.

Make copies of all of the above data and store them off-site in a bank safe deposit box or your home.

Step 2: Assign duties

"Things will go much smoother if everyone knows what they ought to do in a crisis," says Williams. Based on the data you accumulated in step one, assign tasks such as the following:

• Calling all staff members and suppliers to let them know what has happened;
• Notifying suppliers and insurance companies;
• Arranging for repair work by plumbers, electricians and contractors.

You should decide on an office from which to conduct recovery operations. This may be your home or another place away from the main business. A copy of your emergency phone number list and your recovery plan should be kept at this location. Have a computer system in place into which the latest data can be installed. Under the best of conditions, this computer would be updated regularly with business data.

Step 3: Maintain the plan

Don't just write the plan once and put it on the shelf.

"Every six to 12 months you should review your plan to make sure it's up to date," says Williams. "People change. Either they leave the organizations or they get new phone numbers."

You don't want to be stumbling around looking for current information when disaster strikes.

Understanding the potential for financial loss ahead of time will make the actual and psychological losses less severe. Start by identifying those departments in your business that have the most impact on cash flow, and those which are critical to operations. Then develop an emergency plan to insure their continued operation or institute a substitute action to minimize damage.

No matter how careful your planning, there will be some substantial impact on your cashflow and profits in the event of a disaster. Draw up an estimate of the impact, by number of days of suspended operations. Ask the following questions: What inroads will be made by your competitors who can pursue your current customers? What will be the impact on your cash flow by day? How will a disaster affect your ability to sell and deliver goods and services? How much will it cost to get yourself back up and running?

Step 4: Insure for losses

Speaking of the cost of recovery, business interruption insurance can be a critical part of staying in operation while you recover from a disaster. Such insurance covers you for your loss of business income, and reimburses your necessary expenses, when a natural disaster forces you to completely suspend operations. Yet, fire insurance pays only to rebuild or to buy goods and property — it does not pay for the loss of revenue stream while you are waiting to rebuild.

Business interruption insurance will cover such expenses as ongoing payroll, phone bills, rent, electricity and reinstallation of phone and computer systems.

Many businesses cover themselves with six months worth of business income insurance. Your commercial property insurance policy may already include compensation for business interruption; if not, you will need to have a rider attached or seek coverage from another carrier.

"Hundreds of carriers now cover property insurance," says Dave Unnewehr, senior research manager for the American Insurance Assn., Washington, D.C. "It is a very competitive field so you can aggressively shop around."

Unnewehr suggests checking for a company's stability with the three major ratings agencies — Moody's, Standard and Poor's and Best's.

"Look into intangible factors such as speed of payment," he says. "Hurricanes, earthquakes and other disasters trigger a multitude of claims, so you want a company that has a good track record during such times."

Griffin also suggests you purchase "contingent business interruption" insurance, which protects you against loss if your flow of goods or services from a supplier is cut off because of a covered peril.

These are some of the basic steps in protecting yourself against loss from disasters. Taking some time to develop a plan now will pay rich dividends in the future.