About half of all companies close within five years of opening, and 70 percent will close within 10 years. An established company that suffers a significant loss due to a disaster faces the same long odds. The failure rate is virtually identical to the failure rate of startups, risk management consultant Bob Bernens said.
“You are starting over,” said Bernens, the founder of CORE Risk Services. “You have to go get your marketshare back. If you fumbled the ball, you’re in for the fight of your life.”
At Barnes Dennig’s most recent Manufacturers Roundtable, Bernens and Jim Hedrick of Gallagher SKS discussed the value of a well-researched, well-documented and well-rehearsed business continuity plan. A business can help fund such a plan by utilizing the Research and Experimentation (R&E) Tax Credit.
Legislative changes in recent years have opened the R&E credit to companies that previously would not have qualified, and more companies are using it for process improvements that previously they might have shrugged off as “just part of the job.”
“In many cases,” Barnes Dennig Tax Director John Michel said, ”the time and resources you commit to developing a business continuity plan would qualify as a process improvement and thus be eligible for the R&E credit. If you are looking for a way to pay for it, this is an option.”
The credit covers up to 20 percent of the cost of R&E activities, including wages. Nearly $8 billion in R&E credits were awarded in tax year 2009, the most recent year that data is available – and $5.5 billion went to manufacturers. If a company is reluctant to commit resources to developing a business continuity plan, the tax credit could help.
“Risk management and business continuity aren’t necessarily cheap,” Hedrick said. “They don’t cost a lot of money, but it’s a lot of time involved.”
Bernens said the first step is to chart the flow of product from the time you acquire the raw materials to the time the finished product reaches your customer. Then, examine every process along the way, looking for ways to make small improvements and considering all of the hazards that could stall the process. Bernens and Gallagher said they regularly participate in “war games,” where key personnel will brainstorm solutions to a very specific problem during a specific stage of the process.
“It’s really about re-learning your business,” Bernens said.
“There are so many benefits that come out of this than just if a tornado hits your building,” Hedrick said. “It ends up being an organizational development session.”
The next step is to implement and document any changes that come out of those sessions. Both panelists stressed the importance of regular communication with employees, customers and suppliers.
“Documentation of these process improvements also serves as contemporaneous supporting documentation for the research tax credit,” Barnes Dennig Tax Manager Cheryl Ganim said.
In the heat of the moment, it’s likely that not all parties will follow the plan to the letter; the natural tendency in such situations is to try to help wherever and whenever possible. But if a company takes business continuity seriously, the most important steps in the recovery process will be well-rehearsed and well-documented – which will allow the company to recoup its losses as quickly as possible after a disaster and claim a tax credit for establishing the plan before a disaster.
“It’s like the famous quote from (Dwight Eisenhower): ‘The plan is nothing; planning is everything,’” Bernens said. “You learn a lot about your business.”