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The Long-Term Effects Hurricane Harvey Will Have on Small Businesses

Robb Todd

Robb Todd

Business Columnist at Fundera
Robb Todd is a freelance writer and editor at The New York Times, Fast Company, and elsewhere.
Robb Todd
Editorial Note: Fundera exists to help you make better business decisions. That’s why we make sure our editorial integrity isn’t influenced by our own business. The opinions, analyses, reviews, or recommendations in this article are those of our editorial team alone.

The immediate effects of a natural disaster like Hurricane Harvey are obvious almost everywhere one looks in Houston. But the long-term effects are more difficult to assess, especially when it comes to small businesses.

Harvey dumped a record amount of rain near the nation’s fourth largest city—51.88 inches, the highest ever in the continental U.S.—and the resulting floods were catastrophic for the lives and livelihoods of hundreds of thousands of people there. The storm also killed more than 80 and, depending on the estimate, caused about $100 billion in damage.

So if you own a restaurant, this has the potential to shut your business down. But if you own a waste removal company, business might never be better.

Rethinking Expansion Plans

Janice Jucker, a co-owner of Three Brothers Bakery, has been through this before. This is the third year in a row that her business has been disrupted by flooding, and the fifth natural disaster that the bakery, which opened its first store in Houston in 1949 and now has three locations, has had to recover from.

“This was by far the hardest to deal with,” she says. “When we had Hurricane Ike (in 2008) it took me a month to do the disaster applications, and I had to help with the restoration with my husband. But this time I spent a week at home just working on the finances of these things. It’s not just cleaning up. There’s a whole financial ramification that people don’t realize. Your employees have to be paid and your vendors have to be paid. Because we were closed for 17 days, our bank accounts we getting drained.”

Jucker says the bakery had never been closed for more than three days for a flood before. Now, given their revenue, they’re going to have to beef up their wholesale and mail-order business because the city is devastated and people don’t have money to spend. That’s a big change from the expansion to a fourth location that she’d planned. Long-term, Hurricane Harvey cost the bakery—and the city—jobs.

In addition to long-term thinking about the types of materials she rebuilds with and the kind of equipment she uses—tabletop equipment versus machines that have their engines on the floor, for example—she says she’s also focused on legislative changes to help small businesses the next time a hurricane crashes into the city, which is a certainty.

“I’m lobbying for a two-phase approach that businesses need for flood,” says Jucker, who has been sending letters to her representatives in Texas. “You can’t run from tornadoes, but for a flood you can move to higher ground. It needs a legislative change. When you get an SBA loan, you have to have collateral. I’m sure other businesses are in the same situation we’re in. if you speak up, you can make change. You can get laws passed. I’ve done it.”

Beyond changing laws about zoning or the ways loans are handled, one of the most difficult problems she’s had to face in getting the business back up and running has been dealing with garbage.

“They’re saying they’re hoping they can pick up the debris in these neighborhoods, but some people are saying it will be 18 months,” she says. “It stinks. But for the people who live there, they’ll still have that pile of debris months later. We’re talking about 100,000 homes. That doesn’t even include our stuff. It’s unbelievable. It’s like nothing—just the garbage—they’re having a hard time because [Hurricane] Irma happened and these garbage haulers didn’t want to come to Houston because we weren’t paying as much as Florida. And where do we put all the garbage? And these are things you just don’t think about.”

The Upside to Small Businesses

But John Egbert, the owner of Houston-based Egbert Law Offices, an intellectual property firm that he started 25 years ago, says the garbage haulers show the flip side of a natural disaster for small businesses.

“I can speak to the subject pretty well because all of our clients are small businesses and we’re always interacting about what’s going on,” Egbert says. “My impression is that natural disasters are really great for small businesses. This is a boom in the economy right now, especially for small businesses like electricians, plumbers, and cleaning services. There’s so much demand and so little price shopping involved that they are doing incredibly well. Plus, there’s a huge amount for insurance money that’s flooding in—and small businesses are looking at this like a cash cow.”

Egbert says some small businesses, such as his in the intellectual property field, as well as dentists, chiropractors, and others in the medical sector, might have a lull in business because when you’re trying to get your house and life back in order, you’re not worried about your back or your feet or your intellectual property.

“We can analogize it like what happened in New Orleans but, in the long term, it turned out to be an economic boom for the city,” he says. “It’s thriving now compared to what it was before. I would say the long term is very much a positive for these companies. The worst that happened is they overbuild and anticipate that the boom will never end. And it may not for quite a while for some of these businesses. There might be three years of substantial income or substantial sales. After that building is over, we’ll probably experience another natural disaster and the cycle may go on and on and on.”

Planning for What’s Next

Egbert says the best way to prepare for the long term if your business is one that can capitalize on a natural disaster is to gain the experience of working through one to be better prepared for the next, and go from a small- to a medium-sized business.

“For those businesses that are flooded out, you just start over,” he says. “I think it’s just too big of deal to pick up the pieces. You have the inevitable conflict between the landlord who wants rent and the tenant who doesn’t have income. It’s an absolute nightmare for those who got flooded. I just don’t know what the percentages are for those who got affected.”

According to FEMA, abut 40% of small businesses don’t reopen after flooding. But there is research that backs up Egbert’s general thoughts. “The Economics of Natural Disasters” was one of the first attempts to explore the economic impact of catastrophes. According to The New York Times: “The book was largely a case study of the Alaska earthquake of 1964, the most powerful ever recorded in North America. [Douglas] Dacy and [Howard] Kunreuther found that the money that rushed into the Alaskan economy after the temblor, and the generous government loans and grants for rebuilding, meant that many Alaskans were actually better off afterward.”

Something similar happened in 1992 in Florida after Hurricane Andrew hit, “causing what would today be more than $40 billion in damage, the state saw sharp increases in employment thanks to new construction jobs.”

That and the billions of dollars in government assistance and insurance money that will pour into Houston, Egbert says, is part of why he sees a silver lining for the small businesses that survive.

“It’s is contrarian to say that a natural disaster is great for small businesses, but I think that’s the reality,” he says. “I thought about it and thought about it, and spoke to a lot people about it, and when the dust settles, people will be doing very well off all of this. It’s odd.”

But to sustain a small business that isn’t fortunate enough to capitalize off of the recovery, Jucker might be right that there needs to be legislative action for a long-term change to help other small businesses.

“Before I was thinking about growth. Now I’m thinking about survival,” Jucker says. “I went from wanting to open more stores to having to build a wholesale business and mail order. That’s not adding jobs and that’s not good for the American economy.”

Robb Todd

Robb Todd

Business Columnist at Fundera
Robb Todd is a freelance writer and editor at The New York Times, Fast Company, and elsewhere.
Robb Todd