Why a Business Continuity Plan?  It’s your “Plan B”


BACK

Why a Business Continuity Plan?  It’s your “Plan B”

Business disruptions can impact organisations of any size and can happen at any time.  They can be things like natural disasters, cyber-attacks, supply chain failures.  This year we have seen a combination and over the past few months, the phrase “business continuity plan (BCP)” has been thrown around so many more times than before.

We all know that continuity planning is crucial in times of uncertainty, so what is a business continuity plan (BCP) and why has it become such a common topic?

Before we delve into the fundamentals and benefits of having a BCP, let’s get a little nostalgic ….  do you remember the back of bus ads for drink driving that said, “What is your Plan B”?  Well, a BCP is the business equivalent of having a backup plan for when things don’t go to plan.  Certainly, these past few months have tested every business in Australia for things not going to plan.  We have had bushfires, droughts, floods and now COVID-19, all disrupting our normal lives in ways that we did not expect, and challenging businesses to survive.

In the words of Charles Darwin, it is not necessarily the fittest who survive, but the ones who are adaptable, and that can be seen in how businesses have changed their operations and plans in order to continue in business.  Who would have thought that McDonald’s drive-through could be where you picked up your essential milk, bread and eggs?  Genius.

A business shouldn’t have to (i.e. can’t!!) wait until disaster strikes to develop a BCP, but it should be prepared and ready to implement that plan once circumstances force that decision.  Recent global events show that the impact of economic downturns (e.g. the global financial crisis) and social or community disruptors (e.g. COVID-19) reach every country in the world at a much faster rate than used to be the case.  That means that individuals, businesses and governments need to react faster and have stronger plans in place to meet those challenges.  For a lot of businesses, it may be too late to adopt a business continuity plan and they may just have to ride the storm and adapt as best they can.  But it’s also a great time to look at the changes that have gone around us, learn from those, and start developing a plan for the next crisis.  Because there will be the next crisis.

Fundamentals of a BCP

Now that we’ve established the importance of a BCP, how can they help to keep your business moving?

Given the inherent unpredictability of disasters and crises and the very impact they have on businesses, a BCP assists business owners to identify:

  1. what risks have the greatest effect on their businesses;
  2. what aspects of the business are critical to continue through the disruption;
  3. the necessary resources needed to keep the critical aspects of the business functioning; and
  4. to enable the successful recovery of business operations once the disruption has ceased.

The benefits of having such a comprehensive plan in place include giving support to staff when needed, mitigating any financial losses that may occur as a result of the disruption, ensuring key stakeholders such as suppliers and customers are managed adequately and speeding up the potential recovery time required to return to normal.

Identification of risks is crucial because that will often determine which backup plans will work, and which won’t.

Tips for planning and forecasting

A few tips for incorporating in a BCP during a business slowdown are as follows:

  • Customers
    • Collections – Ensure that any outstanding collections are chased up as a priority, as “cash is king” when a business is experiencing a difficult period;
    • Communication – Reach out to clients and discuss any necessary changes in services, i.e. potential delays in deliveries, etc;
  • Suppliers
    • Terms – Discuss with your suppliers if there is any possibility to extend your terms or get a discount for early payment;
    • Forbearance – In the cases of loans and leases, lenders are more likely to offer repayment holidays in distressing times, so always reach out and discuss options with your lender;
    • Cut costs – Where applicable, cut costs which do not contribute to the critical operations of the business;
  • Employees
    • Encouragement – Talk openly with your employees, as they may be scared and unsure about their jobs. Being open and positive with your team can help them through the difficult period;
  • Operations
    • Options – now’s a great time to think about how you could change your operations to minimise the impact – can you reduce hours, provide goods and services online, have staff carry out different functions, etc;
    • Timing – if you do consider changing operations, that’s not something that can usually happen overnight! If your backup plan involves a change like this, make sure you are ready for it and have systems and processes ready to go as soon as possible.

A great supplement to a BCP is to have cash flow forecasting practices in place (which should already be in place in your business!). Forecasting is a great tool to utilise as it allows management to effectively manage their cash and is extra valuable during a business downturn. The added bonus of cash flow forecasting is the benefit of using sensitivity analysis to input external factors such as a loss of customers and/or supplier issues, which may be a result of certain disasters or crises.  It will enable management to anticipate the potential impacts on the business as a result of certain external factors.

In summary, you can’t predict what is ahead, but you can be prepared for it and ensure that you give your business the best chance of surviving such events.

If you would like to know more and find out what options you might have, please contact Suelen McCallum at dVT Group on 02 9633 3333, or by email mail@dvtgroup.com.au

dVT Group is a business advisory firm that specialises in business turnaround, insolvency (both corporate and personal), business valuations and business strategy support.  

July 2020