In South Florida, we are bombarded by the news media about making physical preparations to withstand a storm. This includes tasks such as backing up computers, boarding up, arranging for generators and filling up fuel tanks.
But what about a financial plan to not only prepare for a storm but also to recover quickly and get back in business?
Planning ahead includes being certain that there is sufficient cash flow for all stages of the preparedness process: * Preparation before the hurricane, including boarding up and taking other security measures. * Continuation of payroll and regular operating expenses, including debt payments for a specified period. * Clean-up and debris removal. * Major repairs and replacements.
In order for this to happen, consider the following: * Maintain cash reserves to handle expenses until insurance proceeds are received. * Secure a bank line of credit and perhaps draw down on the line before the hurricane hits. * Before the storm hits, contact your insurance agent to make sure that you have adequate insurance for property damage and lost business income. * Know who you will utilize for emergency repairs and contact them before the storm. * If you have tenants, advise them of their relevant obligations under their leases. * Keep your insurance policies and other valuable papers in a safe and accessible place off-site. * Backup computer data and keep off-site as well.
After the storm, if you have sustained damage, contact your insurance company as quickly as possible. Keep a written record of all verbal and written communications with the insurance company and adjustor.
When insurance proceeds are received, deposit them right away. You may want to establish a separate bank account in order to maintain a better audit trail for the receipts and disbursements.
Prepare a schedule of the work to be done, and periodically compare the amounts paid to the estimated cost.
Hopefully, your business has good internal controls over its accounting systems. Be sure to maintain those controls at all times to avoid the risk of fraud. If you are not sure if your controls are sufficient, you can engage a CPA firm to evaluate the controls and provide you with recommendations for improvement.
For a hurricane-related loss, here are some controls that businesses should consider: * Avoid use of cash or petty cash for repairs. Use checks instead. * Institute a policy to endorse all receipts "for deposit only." * Deposit receipts daily. * Bank accounts and check signers should be authorized by the business owner or board of directors. * Consider having two check signers on all accounts. * Bank accounts should be reconciled monthly by individuals with no other bank account responsibilities. * Utilize prenumbered checks and maintain security of the supply of unused checks. * Match invoices to statements and mark "paid" on all paid invoices, in order to minimize the risk of duplicate payments. * Retain all hurricane related documentation in accordance with the company's record retention policy, but in no event less than six years.
After all repairs are made and the business has returned to normal, evaluate the procedures that worked and those that did not work. This will help you to be better prepared for the next hurricane.
Monte E. Kane, a certified public accountant, is the managing director of Kane & Co., an accounting and business advisory firm with offices in Miami and Boca Raton. He may be reached at: mkane@kanecpas.com.
