What would happen to your business if a key person quit or was out of the office for an extended period of 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 is unable to 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 of time and nobody else in the company knew how to collect cash from customers. As a result, they were unable to 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 threatening 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 was in the hospital unable to 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 types of issues are often ignored because many owners are focused on growing their business and not developing contingency plans. Contingency plans may add costs at times if additional resources or controls are needed, but that additional 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 Contingency Plan?
A 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. In order 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. Included in the contingency plan would be a discover recover 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 own 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 other types of cyber-attacks, it is critical for a company to have access its electronic data quickly in order to minimize any potential downtime and mitigate any potential losses. As mentioned earlier, this may result in some additional costs within the company, but 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 or to be out for an extended period of time, or for a disaster to impact its IT infrastructure, it is critical that the company tests all aspects of the contingency plan, including the DRP. By testing the plan, it does not guarantee that the backup will be an expert in the process and does not guarantee the loss of IT data, it does guarantee 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 could save thousands or millions from loss of data or the ability to do business.