Thu Aug 6, 2020 | | Contingency Planning

Business Contingency Plan – Do You Have One?

business contingency plan

What would happen to your business if a key person quit or was out of the office for an extended time? Would your company be able to receive cash from customers and deposit them in the bank? Would you be able to prepare critical financial reports for your bank? How do vendors get paid if the check signor cannot sign the checks? Do you have a second check signer?

What would happen to the company’s operations if someone hacked your computer system? While these seem like obvious questions any business owner should ask, many businesses experience these issues because they have not developed a business continuity plan.

We know about a company whose bookkeeper was out for an extended period, and nobody else in the company knew how to collect cash from customers. As a result, they could not pay their vendors, who were threatening to stop delivering products, and had to borrow from their line of credit until they figured out how to collect funds from their customers.

In another instance, a key financial person quit, and no one was providing monthly financial information to the bank. Consequently, the bank was threatened to call the line of credit. Without the line of credit, the company would not have enough working capital to fund its operations. Also, we have experienced a situation where a key person in the hospital could not sign vendor and payroll checks. Fortunately, the company had a second person that could sign checks. Otherwise, vendors and employees would not have been paid until this person was released from the hospital.

These issues are often ignored because many owners focus on growing their business and not developing a business contingency plan. Contingency plans may sometimes add costs if additional resources or controls are needed. Still, those extra costs could save thousands of dollars in lost business or other financial losses that may have otherwise occurred. By developing a contingency plan, the company would continue to operate with minimal disruption to its customers, vendors, and employees.

What Is a Business Contingency Plan?

A business contingency plan is a document or process that prepares a company for unforeseen events, such as loss of people, data, customers, and suppliers. As the saying goes, companies don’t plan to fail, they fail to plan. To plan for an unforeseen event, the business should document key processes with standard operating procedures (SOPs) and identifies a backup person for all critical roles. The contingency plan would include a discovery recovery plan (DRP) to protect the company’s information technology infrastructure (IT system).

What Is a Disaster Recovery Contingency Plan (DRP)?

A DRP is a documented process or set of procedures to recover and protect the company’s IT system. While this seems similar to a contingency plan, a DRP includes backing up the company’s electronic files periodically and storing these files off-site, preferably in another city or state.

Many of us have probably experienced a computer crash where we lose access to a few Excel or Word files, the DRP goes beyond ensuring our computers are being backed up regularly. It includes backing up all servers, computers, and other devices where electronic data is stored. With many companies’ computer systems being compromised through hacking or different types of cyber-attacks, a company must have access to its electronic data quickly to minimize any potential downtime and mitigate any potential losses. As mentioned earlier, this may result in some additional costs within the company. Still, the long-term benefit of accessing the data should exceed any short-term costs incurred to back up the data.

Testing the Plan

While companies don’t expect employees to quit, to be out for an extended time, or for a disaster to impact its IT infrastructure, the company must test all aspects of the contingency plan, including the DRP. Testing the plan does not guarantee that the backup will be an expert in the process and does not guarantee the loss of IT data. It does ensure that critical business functions can be performed with minimal disruption to employees, customers, and vendors.

Developing contingency plans is not exciting and doesn’t generate revenue or cash, but it could save thousands or millions from data loss or the ability to do business.