Weather any storm: planning is the key to crisis management and recovery.

EXECUTIVE SUMMARY

* Sound contingency plans can prevent or minimize damage in a crisis. Although natural disasters are the most obvious and dramatic, firms also should be prepared to resume business after a fire or theft, or the loss of a key firm member.

* Business continuation insurance can pay for time lost from client work to manage the disaster response.

* In succession planning, consider the possibility of the sudden death of a partner or other key firm member. At such a time, smaller firms can benefit from having built cooperative networks with other professionals.

* Don't put off crisis management and recovery planning just because it seems daunting. List possible crises to start your firm thinking about how you would carry on. Assign staff to a crisis management team and commit a plan to writing. Then file the plan off site where it can be easily retrieved should the worst come to pass.

You're open for business and dressed for success. You've planned your CPA firm's operations with budgets, flowcharts and contact lists. But are you really prepared? What if something sweep away documents, your equipment or, God forbid, key personnel? Fortunately, there's little under the sun or storm clouds that can't be foreseen--and the best possible time to think through how to handle a cataclysmic event is before it strikes. This article's crisis case studies offer valuable information about how to keep operating when really big setbacks happen. Pat Evans, CPA, was one of 11 people working late on March 28, 2000, when a tornado tore through downtown Fort Worth, Texas, wreaking havoc on the 35-story building that housed Sproles Woodard LLC, the firm at which he was managing partner.

"We hid under the library conference room table. When it quieted, we came out--to the biggest mess," he says. He stepped into the hallway to find rain and wind raging through broken windows and much of the furniture in the newly remodeled office in pieces or simply gone. Miraculously, the computer server was still running.

AFTER THE STORM, BRAINSTORM

No one was injured, and there was another lucky twist: The firm had just moved back into its 7,000-square-foot offices, so many still-packed boxes of documents were intact.

But on the long walk down 23 floors to the street, Evans and other firm members could see the building had sustained extensive damage. The partners called a staff meeting the following day to brainstorm about regrouping and to reassure everyone about the firm's future. In its strategic planning, the firm assumed the IRS would not give it deferrals on the filing requirements for April 15, so it had to act quickly Another key concern was whether the landlord of the structurally sound but temporarily uninhabitable office building would release the firm from its lease--or whether the firm would end up paying rent on two locations at once.

The firm created a temporary staging area in a nearby church. Because of safety restrictions, only seven people were allowed into the office building to retrieve business materials, and only for one hour. So they devised a plan to carry out as much key equipment and data as possible, taking dollies and boxes with them.

A year earlier the firm had reviewed its insurance and improved its coverage to include the cost of a document recovery company, which located client records in the debris and restored them. Evans credits the firm's business continuation insurance with saving a great deal of expense. Among other things, it paid for the time lost from client work to manage the disaster response. "Trying to get us positioned again absorbed my life for the better part of a year," he says. The firm added work it did on the recovery to its time and billing codes to keep a record for the insurance company "Ask your agent what he or she recommends having insured in the event of a calamity," Evans suggests.

Previous busy-season planning also helped, enabling the firm to know the status of all tax returns and to turn its attention immediately to those still pending.

Three days after the tornado, the firm signed a six-month lease for a 5,000-square-foot office in downtown Fort Worth, with the option of continuing on a monthly basis. (It has since moved into permanent quarters in a new building.) "It was not pretty," Evans says of the location, "but we signed in a hurry because space was a commodity after the storm," which affected 1 million square feet of office space. Long-standing relationships with other area businesses also proved valuable, as Evans was able to arrange for immediate cabling, computers and furniture for the new office.

ZIPPY RETURN TO OPERATION

Of course, it doesn't take the drama of a tornado to knock out a small business. When thieves broke into the office of one of CPA Bob Fay's clients, they took the computer and printer that represented the client's entire technology system. After alerting the police, the client called Fay, a sole practitioner in Canton, Ohio, who had only recently suggested the client back up its software and store its data off-site.

Fortunately, the client's part-time bookkeeper had taken home a Zip drive containing all company data, as Fay had advised. With the data safe, the client was back in business by 3 o'clock.

"The theft could have been a crisis for a small business owner," Fay acknowledges, "but this was a real, practical case of a disaster avoided."

While it's common knowledge that backing up information is important, Fay underscores the importance of defining the term and details with clients. "The CPA may believe it means the data are being backed up and then taken off-site--but the client may simply be putting the Zip file in a filing cabinet," leaving it vulnerable to theft or fire.

Taking unprotected information off-site can lead to problems of its own, of course. CPA and consultant Roman Kepczyk of InfoTech Partners North America Inc. notes that laptops and even physical files can be lost or stolen in transit. Even worse, as more files are stored digitally, computer data can be stolen. He recommends a simple tool that can prevent disaster: a USB (universal serial bus) memory fob. Also known as a flash drive or memory stick, it is plugged into a computer's USB port, becoming an extra drive that copies files or a directory and can then be carried on a keychain. It is roughly the size of a remote car key fob and holds up to several gigabytes of data.

HARDEST LOSS TO BEAR

Sometimes firms are forced to face the unimaginable. Schleisman Onken & Associates PC of Omaha, Neb., confronted a devastating personal and professional disaster. Once a sole practitioner, Tom Schleisman had teamed with his son, Greg, to buy another small practice, and added Jane Onken as a new partner. The firm then began a formal transition toward Schleisman's eventual retirement.

All that changed on April 30, 2003, when Greg, his wife and daughter were killed in an auto accident.

"Not only did I lose my son and business partner, but my family situation changed," Schleisman says, as he and his wife became guardians of Greg's surviving three children. "I almost immediately went from working 60 hours a week to working 40," juggling the challenges of holding family and firm together.

The firm was able to weather the tragedy in part because of the succession planning process already in place. "I had reduced my client service by about 20% and my administrative duties by about two-thirds," Schleisman says. "We had people in line to take over," including Onken and firm member Brian Dervin, who was able to take on many of Greg's technical assignments.

The firm also reached out to other local CPA firms with which Schleisman had built strong relationships over the years, seeing them as potential business partners rather than competitors. Schleisman set up support agreements under which the other firms supplied staff as needed. "They did report reviews and tax return research and took on problem jobs that it would have taken us hours to do ourselves," he says.

Schleisman advises firms to think through all possible disasters in the short and long term and analyze how well the practice is prepared to face them. "Ask yourself, 'If this partner was gone, who would do that work?'" Extend this exercise to all key client-service people, including support staff and receptionist. And realistically consider how much excess capacity you have in peak times. If human resources are stretched to the limit, you're at very high risk, he cautions.

PRACTICAL STEPS

What else can firms do to minimize their risks? Take time once or twice a year to list possible crises, put them in priority order and develop contingency plans to address them (see "Gear Up for Trouble," below).

Above all, avoid the worst mistake of all: sidestepping disaster planning altogether because it seems too daunting a task. Don't make the effort bigger than it has to be. You don't need to create a 40-page plan. Begin with small bites. Simply pick a disaster and start thinking.

Take an Umbrella

Between 1980 and 2005, the United States sustained 67 weather-related disasters in which overall damages and costs reached or exceeded $1 billion. Total normalized losses for 58 of those exceeded $350 billion.

Source: National Climatic Data Center.

AICPA RESOURCES

Publications

* Disaster Recovery: A Guide to Financial Issues. The focus of this resource is helping with the personal recovery of disaster survivors. The guide was developed by the AICPA, the National Endowment for Financial Education and the American Red Cross. It can be downloaded at www.redcross.org/services/ disaster/beprepared/finance prep.html. To order bound copies, visit www.cpa2biz.com/ store, call 888-777-7077 or fax [phone] and refer to product no. 017231JA.

* Journal of Accountancy: "Katrina's Harsh Lessons," June 2006, page 54; "The Best Laid Plans," May 2004, page 46; "Before the Deluge and After," April 2003, page 57.

* Management of an Accounting Practice Handbook (loose-leaf) (chapter 214, "Coping with Physical Disaster") (# 090407JA); e-MAP (online) (# MAP-XXJA).

Links

The AICPA Web site (www.aicpa.org) has links to many major disaster preparedness agencies:

* FEMA Emergency Management Guide for Business & Industry, www.fema.gov/ library/bizindex.shtm.

* Institute for Business & Safety, www.ibhs.org/business_protection.

* U.S. Small Business Administration Disaster Assistance, www.sba.gov/disaster.

Other Business Continuity Resources

* ARMA International: The Association for Information Management Professionals, www. arma.org/resources/disaster_recovery.cfm.

* The Association of Contingency Planners, www.acpinternational.com.

* Business Resumption Planning by Edward Devlin, Cole Emerson and Leo Wrobel (CRC Press, 1997), www.crcpress. com.

* The Business Survival Newsletter, www.rothstein.com.

* Contingency Planning & Management, Witter Publishing Corp., www.contingency planning.com.

* Disaster Recovery Journal, St. Louis, www.drj.com.

Gear Up for Trouble

This framework can be adapted to a variety of situations, from natural disasters to loss of a key client or rifts within a firm.

Lay the groundwork.

* Develop a crisis management team. This might involve the entire practice in a small firm, with each person playing a role in anticipating and coping with a crisis.

* Identify your vulnerabilities. Inside the firm, they could be losing staff or leaders. Outside, they could include client defections or crises, competition, world events or fire, flood or other natural disasters.

* Determine how those risks might affect the firm, including its leadership, staffing, facilities, computers and telephones, client relationships, service delivery, reputation, financial situation, vendors and business partners.

Prepare for the worst.

* Establish a chain of command for the crisis management team. Decide who will do what in various situations and in what order.

* Determine how you will communicate work in an emergency, including backup operations. Decide who will be in charge of disseminating information and who will receive it, including people outside the firm, such as clients and vendors.

* Document your plans in writing. Keep them off-site in a safe place the crisis team can access in an emergency.

* Practice for various crises at least once a year.

* Update the plans at least quarterly to reflect changes in the firm, its business environment and other issues, and to include new crisis management team members.

If there is a real crisis ...

* Assert leadership. The designated firm leader should notify the crisis management team and set the response plan into action. He or she should maintain contact with the crisis team and remain visible to staff and outsiders throughout the emergency.

* Communicate. A single spokesperson should keep staff and outsiders informed. Make clear to firm members and outsiders that the crisis is being addressed. Firm leaders should remain in contact with the crisis team and any affected outsiders.

* Know when it's over. Firm leaders should determine when the practice can relinquish crisis mode and resume normal operations.

* Critique the firm's response and make improvements as needed.

Source: Jennifer Wilson. ConvergenceCoaching LLC.

Anita Dennis, is a JofA contributing editor and freelance business writer.