BEING PESSIMISTIC IS usually an undesirable trait—that is, unless you run your own small business.

Entrepreneurs need to consider the worst of all calamities that might befall their business so they can take the best preventive steps. A crisis situation, whether caused by a natural disaster or a strategic setback, is particularly risky for small companies that have less financial wiggle room to withstand shocks than larger counterparts.

Often, a small business is so linked to the community it serves that it's particularly vulnerable to changes in local economic conditions, says Harlan Platt, a finance and insurance professor at Northeastern University in Boston. For example, "when customers get into trouble [small businesses] get into trouble," he says.

To limit damages and minimize the time it takes to recover from various crises, consider creating or revisiting your business's "contingency plan." This document, which can either stand alone or be included in a regular business plan, is essentially an alternative plan for doing business in times of crisis.

Say, for example, the one and only oven in your restaurant conks out in the middle of a Saturday night dinner rush. You'd better have a repairman on speed dial or a replacement oven waiting in the wings. And if your business is located in a flood plain, flood insurance is a must.

To be sure, planning for the worst is unpleasant. It can seem like a waste of time—as you're planning for an event that may never transpire. But even if nothing ever happens, "the fact that you have rehearsed this process will make you that much more flexible and adept when a crisis does hit," says Erika Hayes James, a business administration professor at the University of Virginia's Darden Graduate School of business.

Plan Basics

At a minimum, a contingency plan includes backing up computer files and housing them in a secure spot away from the business. More complex plans might call for a secondary work site, work-recovery measures or the means to establish new supply chains.

Developing a contingency plan "often requires creativity" and the ability to "imagine worst-case scenarios," which can be difficult for business owners who already spend 10 to 12 hours a day working, says James. She recommends enlisting the help of a crisis-management firm. But experts are pricey. Larry L. Smith, president of the Institute for Crisis Management in Louisville, Ky., says a thorough plan, which includes training employees on recovery methods, can cost between $10,000 and $20,000.

Small-business owners with limited means may want to etch out a plan on their own and take it to an attorney or crisis-management firm to look over. The Institute for Business & Home Safety, a Tampa, Fla., nonprofit supported by the insurance industry, provides a free disaster-planning toolkit.

Pinpointing Risks

The first step in any business's contingency-planning process should be an analysis of its vulnerabilities. "Identify the sort of things that would interrupt your business," says Jack Harrald, director of the George Washington University Institute of Crisis, Disaster, and Risk Management. Once you've pinpointed risks, come up with a back-up plan and protective measures.

Let's say you have one major client. If this client were to leave, your business might suffer a dramatic loss in revenue, which could hamper your ability to pay employees, suppliers and even creditors. So to protect your business from relying too heavily on one client, consider boosting your marketing budget so you'll bring in more clients and thus, diversify risk. The review of your weaknesses "can be perceived as an opportunity for companies," James says.

Other risks might include damage wreaked by power outages or computer crashes. Back-up strategies include duplicating copies of payroll, tax and accounting records, and keeping customer and supplier contact lists in a location away from the business. Back up all vital computer files and your business's computer network as well. You can get five gigabytes of online storage space for free at xdrive.com, a service provided by AOL, or rent 50 gigabytes for $9.95 a month.

Communications Strategy

You might need a way to disseminate information to the public, especially if you're dealing with an unfortunate event. A small business that sells children's products, for instance, might need a communications strategy if one of its manufacturers recalls defective toys.

"Appoint someone to handle all incoming calls from [the community] and from the media," says Howard Rubenstein, president of Rubenstein Associates Inc., a public-relations firm in New York that specializes in crisis communication. "You can't have a dozen or even five people" giving instructions in a crisis. That point-person should send one clear message to your business's customers or clients and to the community at large. And most importantly, adds Rubenstein, this person has to be "cautious, accurate and can't lie."

You'll also need a way to communicate with employees and important vendors, suppliers or customers. Compile a list of important numbers, and keep a copy in a secure place. If a disaster does strike, simply go down the list and alert everyone to the situation. Be sure to provide important contact information and your plan of action.

Insure Against Interruptions

For extra security, some business owners opt for business-interruption insurance. Such a policy can cover a loss of profits, employee overtime, extra security or the cost to rent a temporary workspace.

Some coverage is available under a standard Business Owner's Policy, or BOP, although bigger businesses may need to add a separate rider for business-interruption insurance. Costs of this type of policy will depend on a business's location, occupancy and scope of protection. "In an ideal world, you want everyone to have insurance," says James. However, even then, she adds: "It's all about thinking and preparing in advance."