Let's take an example which might lead to bankruptcy. A typical answer to a major disaster (let's say your main and sole building burning as a typical case) for an SME would be to cease activity, furlough employes and stop or defer every payments you can while you claim insurance and assess your options. Well, none of these things are obvious to do especially if all your archive and documents just burnt. If you think about it (which you should), you will quickly realise that you at least need a way to contact all your employes, your bank and your counsel (which would most likely be the accountant certifying your results rather than a lawyer if you are an SME in my country) offsite. That's the heart of disaster planning: having solutions at the ready for what was easy to foresee so you can better focus on what wasn't.
Yes it is. (Though it's better, as GP suggested, as a final layer of a plan and not the only layer.)
> Becoming insolvent might be the end result of a situation but it's not going to help you deal with it.
Insolvency isn't bankruptcy. Becoming insolvent is a consequence, sure. Bankruptcy absolutely does help you deal with that impact, that's rather the point of it.
Bankruptcy when dealt with correctly is a process not an end.
If everything else fail it's better to fill for bankruptcy when there is still something to recover with help of others than to burn everything to ashes because of your vanity.
At least that's how I understood parent's comment.
There are two types of bankruptcies in the US used most often by insolvent businesses: Chapter 7, and Chapter 11.
A Chapter 7 bankruptcy is what most people in other countries think of when they hear "bankruptcy" - it's the total dissolution of a business and liquidiation of its assets to satisfy its creditors. A business does not survive a Chapter 7. This is often referred to as a "bankruptcy" or "liquidation" in other countries.
A Chapter 11 bankruptcy, on the other hand, is a process by which a business is given court protection from its creditors and allowed to restructure. If the creditors are satisfied with the reorganisation plan (which may include agreeing to change the terms of outstanding debts), the business emerges from Chapter 11 protection and is allowed to continue operating. Otherwise, if an agreement can't be reached, the business may end up in Chapter 7 and get liquidated. Most countries have an equivalent to a Chapter 11, but the name for it varies widely. For example, Canada calls it a "Division 1 Proposal," Australia and the UK call it "administation," and Ireland calls it "examinership."
Since there's a lot of international visitors to HN I just thought I'd jump in and provide a bit of clarity so we can all ensure we're using the same definition of "bankruptcy." A US Chapter 7 bankruptcy is not a plan, it's the game over state. A US Chapter 11 bankruptcy, on the other hand, can definitely be a strategic maneuver when you're in serious trouble, so it can be part of the plan (hopefully far down the list).
I wondered why you should plan an event which will "destroy" your company anyways.
Yes, that's why "Go bankrupt" is not a plan which was the entire point of my reply. That's like saying that your disaster recovery plan is "solve the disaster".
Fast Fashion for example often employs workers in more or less sweatshop conditions close to the customers (this makes commercial sense, if you make the hot new items in Bangladesh you either need to expensively air freight them to customers or they're going to take weeks to arrive after they're first ordered - there's a reason it isn't called "Slow fashion"). These jobs are poorly paid, many workers have dubious right-to-work status, weak local language skills, may even be paid in cash - and so if you tell them they must come in, none of them are going to say "No".
In fact the slackening off in R for the area where my sister lives (today the towering chimneys and cavernous brick factories are just for tourists, your new dress was made in an anonymous single story building on an industrial estate) might be driven more by people not needing to own new frocks every week when they've been no further than their kitchen in a month than because it would actually be illegal to staff their business - if nobody's buying what you make then suddenly it makes sense to take a handout from the government and actually shut rather than pretend making mauve turtleneck sweaters or whatever is "essential".
For these major routes, there are typically at least bi-weekly voyages scheduled, so for this kind of distance, you can expect about 11 days pretty uniformly distributed +-2 days, if you pay to get on the next ship.
This may lead to (committing to) paying for the spot on the ship when your pallet is ready for pickup at the factory, not when it arrives at the port) and use low-delay overland trucking services. Which operate e.g. in lockstep with the port processing to get your pallet on the move within half a day of the container being unloaded from the ship, ideally having containers pre-sorted at the origin to match truck routes at the destination. So they can go on a trailer directly from the ship and rotate drivers on the delivery tour, spending only a few minutes at each drop-off.
Because those can't rely on customers to be there and get you unloaded in less than 5 minutes, they need locations they can unload at with on-board equipment. They'd notify the customer with a GPS-based ETA display, so the customer can be ready and immediately move the delivery inside. Rely on 360-degree "dashcam" coverage and encourage the customer to have the drop-off point under video surveillance, just to easily handle potential disputes. Have the delivery person use some suitable high-res camera with a built-in light to get some full-surface-coverage photographic evidence of the condition it was delivered in.
I'd guess with a hydraulic lift on the trailer's back and some kind of folding manual pallet jack stuck on that (fold-up) lift, so they drive up to the location, unlock the pallet jack, un-fold the lift, lower the lift almost to the ground, detach the pallet jack to drop it the last inch/few cm to the ground, pull the jack out, lower the lift the rest of the way, drive it on to the lift, open the container, get up with the pallet jack, drive the pallets (one-by-one) for this drop-off out of the container and leave them on the ground, close and lock the container, re-arm the jack's hooks, shove it jack back under the slightly-lowered folding lift, make it hook back in, fold it up, lock the hooking mechanism (against theft at a rest stop (short meal and toilet breaks exist, but showering can be delayed for the up to 2 nights)), fold it all the way up, and go on to drive to their next drop-off point.
So yes, getting insurance can be a good idea to offset some losses you may have, as long as they are somewhat limited compared to your companies overall assets and income. But as soon as the insurance payout matches a significant part of your net worth, the insurance might not save you.
As such, it makes sense to make the level of risk you plan to accept (by not being insured against it and not mitigating) a conscious economic decision rather than pretending you've covered everything.
The big example of this which springs to mind is business interruption cover - it's ruinously expensive so it's extremely unusual to have the max cover the market might be prepared to offer. It's a pure economic decision.
Usually you'd have to show your homework (offers from insurance companies proving that it really is unaffordable). I totally get the trade-off, and the fact that if the business could not exist if it was properly insured that plenty of companies will simply take their chances.
We also both know that in case something like that does go wrong everybody will be looking for a scapegoat, so for the CEO's own protection it is quite important to play such things by the book, on the off chance the risk one day does materialize.
This has killed quite a few otherwise very viable companies, it is fine to take risks as long as you do so consciously and with full approval of all stakeholders (or at least: a majority of all stakeholders). Interesting effects can result: a smaller investor may demand indemnification, then one by one the others also want that indemnification and ultimately the decision is made that the risk is unacceptable anyway (I've seen this play out), other variations are that one shareholder ends up being bought out because they have a different risk appetite than the others.
Lots of people plan for specific elements they can imagine and forget other equally or even more important things they are going to need in a disaster. Check out how many organisations that doubtless have 24/7 IT support in case a web server goes down somehow had no plan for what happens if it's unsafe for their 500 call centre employees to sit in tiny cubicles answering phones all day even though pandemic respiratory viruses are so famously likely that Gates listed them consistently as the #1 threat.