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Making Business Decisions Following a Disaster

by Corporate Relations and Business Strategy Staff

Following a disaster such as Hurricane Katrina, psychologists in affected areas find themselves struggling not only to rebuild their homes and communities and support those in need of services, but also to make difficult business decisions about their practices in an environment often marked by uncertainty.

This article highlights important business considerations for practicing psychologists and outlines key activities related to rebuilding a practice in the aftermath of disaster such as a hurricane, fire, flood, earthquake or terrorist act.

Assessing Your Situation

Once the immediate crisis has passed and you have attended to the safety and basic needs of family, friends and neighbors, the focus will begin to shift to restoring the functioning of the community. As you consider the next steps with regard to your practice, it is essential to arm yourself with the data needed to make well-informed business decisions. In addition to learning about what government agencies and community organizations are doing in response to the disaster and about the resources available to you, you will need to evaluate the implications for both the community and your practice.

The Community
Take care not to assume that the same needs, demand for services, financial resources, referral sources or even clients will still exist following a major disaster. In the short-term, needs and priorities may be very different than they were before.

Although information may be scarce and the future uncertain, make your best effort to understand and identify the emerging needs of your current and potential clients and how these needs will change as rebuilding efforts move forward in the community. Consider your areas of expertise as they relate to your postdisaster community and the beneficial services you could provide. In this changed environment, with whom would you need to connect in order to reach potential clients and referral sources and maintain a viable practice?

Even if your practice did not sustain significant damage or you have adequate insurance coverage and a solid disaster recovery plan, the viability of your practice as it previously existed may be threatened. Displacement of, or relocation by, your clients and/or referral sources coupled with a devastated local economy can quickly put an otherwise functional practice out of business. Because large-scale disasters can disrupt entire communities, be sure to evaluate the services you currently offer as well as those you are considering the same way you would evaluate a new practice opportunity.

Your Practice
When you are able to access your office, quickly assess the damage and losses, review your insurance policy and talk to your agent immediately to start the claims process. Determine the coverage you have and what costs you will have to incur yourself.

Review your business plan to determine whether your mission, goals, services, clientele, referral sources and communication strategy are still viable given the changes that have resulted from the disaster. Make necessary changes to your business plan based on your assessment of the community and your evaluation of practice opportunities.

How well your practice fares financially following a disruption to your practice will depend, in part, on the financial status of your practice prior to the disaster. Work with your accountant or financial advisor to conduct financial and operating analyses that will help you assess your financial situation. Formulate revised financial projections that take the disaster into account. Be conservative in terms of revenue projections, since community rebuilding is an extremely slow process and in many cases, “business-as-usual” is forever altered following a major disaster.

Weighing Your Options

When your practice is disrupted as a result of a major disaster, there are four business options in terms of how to proceed. Although there are variations of each, in general, you can close, sell, relocate or reopen your practice. The emphasis in American culture on “getting back on the horse” after a fall, combined with psychology’s focus on helping others, often results in a desire to rebuild at any cost. Before making this decision however, it is important to utilize the expertise of your financial advisor and carefully consider how to proceed within the context of your personal and professional goals, the business realities you face and the resources you have available.

Closing Your Practice
Closing your practice does not necessarily mean the end of your career. After thorough evaluation, you may decide that cutting your losses or selling off your remaining practice assets is the best course of action under the circumstances. Based upon your personal and professional goals, you might then decide to transition into a new stage of your career, start a new practice or business venture or seek employment with an agency, hospital or other institution. Similarly, if you are planning to retire soon, it may not be realistic to rebuild your practice and recoup the costs of doing so in the remaining time. Closing a practice brings with it a variety of clinical, ethical, legal and business obligations, including ensuring continuity of care for your clients. See “checklist for closing your practice (PDF, 44KB)” for a more detailed list of actions and considerations you may need to attend to when closing a practice.

Selling Your Practice
The sale of a psychology practice can be difficult in the best of circumstances. As a result, selling your practice following a major disaster is a highly unlikely prospect, especially if your practice assets were lost or facilities and equipment damaged. Although some situations may lend themselves to a sale (for example, having a business partner who wants to continue or a competitor who would be happy to acquire your market share), the added complexity of disaster recovery and insurance claims coupled with the sale of the practice will almost certainly require outside experts including attorneys, financial advisors and business brokers to facilitate the process. For general tips related to selling a practice, see “10 tips for selling your practice." 

Relocating Your Practice
Following a major disaster, you may decide to relocate your practice to a new building, another part of town, or a different city or state that was spared from damage. Relocation may be a good option if you were already considering a move or if rebuilding in your current location is not feasible. If you decide to move your practice, you will need to consider whether you intend to keep your current clients or build a client base from scratch in your new location. If you intend to continue seeing your clients, be sure your new location is accessible to them. Other issues to consider include renting versus buying office space, licensure and mobility issues, and making appropriate referrals for clients you will no longer see.

Reopening Your Practice
If you decide to rebuild and reopen your practice, you must consider how you will pay for repairs, rebuilding and the cost of doing business until your practice is profitable again. Funding options may include using assets held by your practice, obtaining a small business loan, using insurance payments, tapping into your personal savings or assets, borrowing money from family members or using personal credit. Be especially careful if tapping into your savings or retirement funds or using personal assets as collateral for a loan. Without a careful cost benefit analysis, accurate financial projections and a well-thought-out business plan, using personal assets or debt to finance the reopening of your practice (especially late in your career) can be a risky move.

Steps to Rebuilding

If you decide to reopen your practice and have a disaster recovery or business continuity plan in place, now is the time to start following the steps you outlined. If you did not have a plan in place, you will face the even more challenging task of obtaining the information you need, piecing together what you can from various sources, and planning as you go. 

Identify resources. Be aware of resources that may be available from the Federal Emergency Management Agency (FEMA). the American Red Cross, and other local, state and national government agencies. Find out what assistance is available from local media, professional associations and community groups, including information about temporary office space, jobs, communication channels to reach those who have been displaced and other disaster-related resources. See the end of this article for additional resources available to small businesses. 

Set priorities. Identify your critical business functions, the aspects of your practice that must be immediately operational. Business functions are critical if they are related to legal or ethical obligations, tied to your cash flow, time sensitive or central to your ability to maintain a presence in the community. Create a plan to quickly resume these functions, using your consultants as needed. Critical business functions for practicing psychologists might include: crisis management for clients; communication with clients, staff and referral sources; service provision; payroll; billing and accounts receivable; debts and other financial obligations; and community outreach and assistance with disaster mental health needs. 

Obtain usable work space. After assessing the damage to your office, take any steps necessary to prevent further damage. For example, shut off plumbing that is leaking, board up broken windows or holes in the roof, turn off electricity if wires are down and remove salvageable items that could become damaged if left on site. Contact your local utility companies about the restoration of electricity, gas and water. If your office is no longer secure or will require extensive repairs before being usable again, move client records and other confidential information to a secure location and collect any documents or records you will need to access in the interim. If you rent your office space, review your lease carefully to determine your responsibilities with regard to repairs and how you can terminate the lease, if necessary. Local government or other community groups may have a list of contractors available for repairs and industrial clean up. Be sure that any repairs comply with local building codes. If damage is severe, you may need to consider a temporary office location while you rebuild and make repairs. Peers, colleagues, referral sources, schools and organizations you are connected with may be able to provide you with temporary office space while you rebuild your practice. Replace, borrow or rent key pieces of equipment that you need in order to resume your key business functions, such as a computer, a telephone and test materials. 

Reestablish lines of communication. Communicating with clients, employees and other key contacts may be difficult, especially if phones are down, your office is not accessible and people are displaced. Leave instructions on your voicemail or with your answering service for contacting you or accessing needed services and have the telephone company forward your office phone to a different number where you can be reached. If you use an answering machine in your office and it is not accessible or functioning, have the phone company add voicemail to your account, so you can access and manage your messages remotely. If phone lines are down, you may still be able to reach people by e-mail or cell phone. Other methods of communication following a crisis may include posting a message on the homepage of your website, placing a notice with local media sources or leaving messages on community bulletin boards. Be sure to forward your mail to a post office box or a temporary location, if necessary. Make a list of the people and entities you need to contact and begin to reach out to assess their status, determine their needs and discuss a plan for moving forward. 

Obtain copies of vital documents and records. In the aftermath of disaster, you may find that your records are destroyed, missing, or otherwise inaccessible. Identify the records that are vital to the functioning of your practice. What documentation is required by law, necessary for your critical business functions or needed in order to rebuild your practice? Vital documents may include client records, employee files, payroll data, your business plan, property title or lease, insurance records and contracts you hold with payers. If you backed up your practice’s electronic protected health information to be in compliance with the HIPAA Security Rule, access the backup files that you stored offsite. If you haven’t backed up your data, you will need to pull this information together from multiple sources, such as insurance companies, referral sources and other providers you have sent reports to. When dealing with documentation such as client records, be mindful or your legal and ethical responsibilities with regard to privacy and confidentiality. You can request copies of financial records from your banks, creditors, payers and billing service, as well as from your financial advisors and the IRS. In many cases, these documents may be available online through your financial institutions’ websites. In large-scale disasters like Hurricane Katrina, the IRS, mortgage companies, creditors and membership organizations may offer relief to those affected. Ask about options such as extending payment deadlines, reducing payments, waving penalties and establishing flexible payment options. 

Move forward and maintain flexibility. Rebuilding after a major disaster is a slow process in an environment that is often forever changed. Some psychologists will close their practices, some will move to new locations and others will remain and attempt to rebuild their practices. Those who are successful will carefully assess the new landscape, make well-thought-out business decisions, offer services that meet emerging needs and contribute to the healing and growth of the community. Success will be based, in part, on the ability and willingness to adapt to the new environment, identify opportunities and overcome challenges. The restoration of critical business functions is just the beginning. As the rebuilding continues, think about how you will manage business disruptions that may occur in the future. Establish or revise your disaster recovery plan, back up vital documents, obtain adequate insurance and protect your practice in the future.

Additional Resources for Small Businesses

 

Date created: 2005