Rebuilding a Small Business in the Wake of Hurricane Katrina

Five Fiducial franchisees were right in the thick of things when Hurricane Katrina devastated the U.S. Gulf Coast and are experiencing first hand what it takes to rebuild a small business that has lost everything.

As the nearest Fiducial franchisee in the path of Katrina, Richard Drexel of La Place, LA, says he’s doing “as well as can be expected” in the aftermath of the recent destruction considering he’s lost about “50% to 75%” of his small business clients.

La Place is located 25 miles west of New Orleans in St. John Parish where Drexel has operated his office for the last 10 years. Since communications have been severely disrupted, he doesn’t know when he’ll be able to contact his clients.

“Communications are so bad that I cannot call out of my own area,” said Drexel. “I can’t even call someone on the cell phone next door and I have not heard from any of my clients.”

A friend working for FedEx told him that “there are no businesses to deliver to and you cannot get supplies in” due to the flooding.

Taking stock of his business, Drexel says his office suffered only minor damage in its building and all his records are intact. His home also had minimal damage and his family is all healthy.

“I’ve ridden out some hurricanes that have brushed us but this one was different,” he said. “The official wind gust at my house was 84 miles per hour but my parents in Slidell were right in the eye with winds at 145 miles per hour. That area was pretty much totaled. Where they live there was nothing left to see. If we got hit by the eye we wouldn’t be talking.”

Reinventing the business

Drexel is concerned about his clients especially the ones who had direct business connections to New Orleans. After the storm he got together with those in his community and found out that one of his neighbors does porcelain tile repair on such antiques as claw foot bathtubs.

“He’s been in business since 1958 and 90% of his clients are in New Orleans,” Drexel said. “I’ve told him that he needs to reinvent himself. Porcelain repair is a niche business so I gave him some ideas of what to do.”

During the brainstorming session, the neighbor admitted he will probably scale back to do porcelain chip repair instead of taking on larger projects. The neighbor wants to sign up as a client but revealed that right now he doesn’t have any money to pay Drexel.

Offering additional advice, Drexel suggested the porcelain repairman call the Federal Emergency Management Agency (FEMA) to file a claim. For other small business owners that were decimated by Katrina, he says if they had a place of business with a store front that was damaged that they can take the loss on their taxes but if they operate out of their house as a 100% service industry “you’re out of luck.” (See accompanying sidebar for more tax information).

It’s unknown just how many small businesses will be able to fight back from these tremendous losses. Even if their operations remain intact, other companies that they do business with are reeling and that’s a major dilemma.

One of Drexel’s clients, for example, has a janitorial supply company that now will have nobody to deliver to because all his clients are in New Orleans. Another client is in the plastics business but his store is under eight feet of water and all the inventory is probably ruined.

Location is everything

In Houma, LA, 60 miles southwest of New Orleans, Fiducial franchisee Terri Dockery says she and her clients had a little shingle damage but the businesses managed to weather the storm. She believes many clients should safeguard their business records by having vital information scanned onto compact discs that can easily be taken with them if they have to evacuate quickly due to an approaching storm. This will prove invaluable when filing insurance claims after a natural disaster.

“You should save all of your personal asset information on CDs now,” said Dockery who has operated her business for 20 years. “That way all the important papers are there so when a catastrophe strikes just grab those CDs.”

Eddie McFearin and Cheryl Millin both own Fiducial franchises in Baton Rouge, Louisiana’s state capital. Location is everything in business and when it comes to hurricanes, these franchisees benefited from their geographic proximity when the winds and rains swept through the state.

“Being on the western side of the hurricane helped a lot because that’s the calmer side,” said McFearin. Aside from losing power at his house and having some downed phone lines near his office which he’s run since 1997, his business experienced no real damage. Dealing with the influx of refugees from New Orleans, however, has been another matter for local residents. Gasoline and certain food items are in short supply.

“My wife went to the grocery store and all the meat was spoiled,” he said. “There was a lot of panic buying.”

For those businesses that will have to rebuild, McFearin made the distinction that depending on the type of business, some will have an easier time than others.

“If they’re a physical plant that was heavily damaged that’s one thing but if they are a lawyer all they have to do is rent another building,” he said.

When it comes time to rebuild businesses, McFearin says local banks and financial institutions are willing to help. If the business was strong before the hurricane arrived and they were properly insured, they should be in good shape. But if they are under insured or not insured, “they will have a taller hill to climb.”

Rising from the wreckage

Millin is no stranger to disasters as evidenced by the fire that burned down her office last year. In fact, coping with the hurricane was easier than sifting through the ashes of her charred office last May. Her business, located in an office complex, was moved four weeks later to a permanent location.

She bought the operation in 1999 after working in the office for 25 years. The biggest crisis for her service station and convenience store clients in the wake of Katrina has been getting gas for customers.

“One of my clients, a Shell convenience store owner, just called me this morning and has been told by the jobber that they’ve been put on allocation,” said Millin. This limits the amount of gas that the dealer receives.

For those small business owners that have lost everything, she advised that they should contact their state sales tax department as well as the Internal Revenue Service to get copies of important business records. Millin remembers how difficult it was to resurrect her business after the blaze.

“For the first week after the fire I was doing live payroll at my kitchen table at home,” she said.

When she first sifted through the ashes of her fire-damaged office, Millin recalled looking for the checkbooks and the bank ledger. Fortunately, the records were salvageable and key data was scanned into the computer system but not every entrepreneur has that capability.

“He average business owner doesn’t have that kind of stuff,” she said. “Hopefully their tax preparer has it.”

Perhaps the biggest problem for small business owners who evacuated the region, Millin says, was they thought they were going to leave for a few days and come back home. But in their rush to leave they left critical business documents behind such as insurance policies and tax returns.

“They’re in denial because they did not pack those papers,” she said.

Up in Jackson, MS, Fiducial franchisee James Vlach indicated that small businesses in this locale, 200 miles north of New Orleans, fared pretty well overall after losing power for several days.

“We had about 12 hours of 50 to 80 miles per hour winds, tons of trees down and there still are people without power,” said Vlach.

A number of convenience store owners lost sales because they did not have enough gas available for customers. “That affects inside sales too,” he said.