URL: http://www.entrepreneur.com/management/insurance/riskmanagement/article62286.html

Q: How can I better prepare for the unexpected in my business?

A: Your business can be zooming along, making profitable sales, creating happy customers, generating strong cash flow...and then suddenly, an unexpected event can come out of left field and wipe you out. You may not have given this possibility any thought, and I hadn't either--until I had just such an experience with my home-building business.

Things were going great. Sales were up, and we were starting to really take off. Then one day--out of the blue--we got word that our liability insurance carrier was pulling out of Alabama and dropping all of its clients immediately. In the home-building business, if you don't have liability insurance, you can't get building permits. Just that quickly, we were shut down.

I talked to what seemed like every insurance agent in the world, and when they found out we had been in business for less than two years and weren't currently insured, they told us that they didn't know of anyone who would insure us. The fact that we had never had a claim didn't matter. I finally was able to get one quote for $65,000 per year. (We had paid $4,800 the previous year.) Talk about being between a rock and a hard place--taking that much from the bottom line of our three-person business would have sunk us. After much more searching, I finally found a carrier that would insure us for $16,000 per year, with other conditions that would raise that amount to closer to $25,000 and cause me to spend an enormous amount of time on paperwork. We wound up taking that deal because we had no choice. We had never considered that this might happen to us.

The point is that you just never know what surprises await you, but you have to do your best to be ready for the unknown. Some things are out of your control, but others can be prepared for if you think ahead. Consider a couple of examples:

What would you do if you got to work on Monday and found a resignation letter from your top salesperson, who is leaving to join your competition? What if your banker dropped by to call your line of credit?

When news like that takes you by surprise, it can be hard to handle gracefully! The time to prepare is now. Think about what you can do now to prevent such events or at least lessen their impact. You could work to improve your relationship with that top salesperson and structure your organization so that it isn't so dependent on one person. You could work to understand how your banker thinks and what he looks for in your company. You could also form relationships with more than one bank to counter the effect that a change in management or policy at one bank may have on your business. If you aren't thinking about these types of issues now--and aren't on the lookout for things that could possibly go wrong--you won't be ready for any of them.

This is a hard subject to define. It's easy for us to come up with a couple of quick examples, but how do you think about the big picture and plan for things that you don't know about? The only advice I can give you is to allocate some strategic time each week to looking at different aspects of your business and asking yourself what could go wrong. Make a list of each scenario and then decide what you would do to prevent it, reduce the odds of it happening and reduce its impact if it does happen. Then look at that list and work on the most important things. You can't prepare for everything, but the more things you think about now, the more you'll increase your odds of long-term survival.

Keith Lowe is an experienced entrepreneur who is a founder and investor in companies in several industries. Lowe also mentors new entrepreneurs; serves as past chairman of the board for Biztech, a nonprofit high-tech business incubator; and is a co-founder and officer for the Alabama Information Technology Association.