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Business Continuity Plan: How to Prepare for Business Interruptions

Finance
Article
07/12/2018

Hurricanes, blackouts, and ice storms are just a few of the many disasters that can lead to business interruption. Documenting steps to be followed in the event of a loss of power, facilities, personnel, or access to technology often becomes a key to long-term survival. Having a business continuity plan (BCP) in place can help weather the storm and set your business on the right path to disaster recovery.

What is a business continuity plan?

A BCP involves identifying potential disastrous events that may affect your company and assembling a list of procedures that detail how to respond to and recover from these specific threats. Though business continuity plans may appear complex and time-consuming, even a basic set of policies and procedures can be useful. Both large and small companies can be impacted by business interruptions, but smaller companies may not have acquired the necessary financial resources to quickly recover after a period of downtime.

Risk assessment

Business continuity management often begins with risk identification and assessment. No region or business is immune to a natural or man-made disaster. For instance, companies located away from earthquake zones or common hurricane paths may still have to deal with the electricity being down. Even a bad flu season can increase employee absenteeism. To narrow down your greatest risks, you can start by reviewing past insurance claims and tracking any events that cause even a minor disruption to operations. Examine your list of vendors and your supply chain to determine if external factors could lead to a serious business interruption. Ultimately, a risk assessment should identify the threats that exist to your business and the likelihood for those threats to actually occur.

Events that can lead to business interruption: hurricanes, blackouts and power outtages, ice storms, earthquakes, flu season, etc.

Data backup and accessibility

Data backup and recovery is a vital component of business continuity planning. Companies must safeguard confidential information at all costs and develop procedures to quickly recover data if a natural disaster like a fire or hurricane occurs. Data access from alternative locations is crucial and can be accomplished by working through cloud-based applications. Depending on whether your in-office technology is accessible, business processes must continue and employees will need to be paid. Including vendors and business partners in your continuity plans can help. For example, working with a payroll processing company that has the proven resources to function properly can help ensure your staff receives their compensation, no matter how severe the disaster. Experienced payroll companies have managed their way through natural disasters and built an infrastructure to deal with a variety of scenarios.

Business process or unit relocation

Business relocation should be considered well in advance of any event necessitating a move. Offsite storage is one way to diversify your risk, especially when the second site is in an area not prone to the same weather events. For example, a construction company working in a beach town may want to store equipment far enough inland to avoid damage to equipment caused by flooding. Reciprocal agreements may also be put in place with other small businesses with office space.

Employee action plan

Employees should be informed of their roles and given the opportunity to practice business continuity procedures. It is wise to document the intended methods of communication with workers in the event of an emergency — via text message, phone, or email. Written instructions included in a small business continuity plan should categorize additional job responsibilities. If advance warning is issued, an emergency preparedness checklist can be distributed and followed to safeguard your office as much as possible. The policies and procedures can help guide employees until conditions return to a business-as-usual environment.

To assist workers, companies may wish to establish a space for employees who need to work through an event but require assistance with childcare. Monique Jennings, Paychex HR generalist, points to a business continuity plan that other small business owners may consider implementing. One of her clients came up with an employee-friendly solution to assure the continuity of operations.

The company is located in an area prone to ice storms, which can bring entire communities to a standstill. To assist employees, a safe/family room was set up in the office, and is stocked with food, bottled water, electric blankets, games, electronics, extra power cords, and cordless battery chargers. This simple plan allows the business to remain operational and provide a safe place for employees and their families when the power is out and schools are closed.

Taking the initiative to update customers on a continuity plan demonstrates a proactive and committed approach.

Cash flow effects

Even if a business stays relatively intact, a drag in consumer spending after a disaster can affect cash flow. A recent JP Morgan report showed a significant drop in small-business cash balances in Houston and Miami after hurricanes Harvey and Irma. Cash balances were viewed as an important measure of the liquidity of the small businesses studied. A rebound was observed in two to three weeks, which led to the conclusion that the storms produced a significant impact over a short time period.

In Hawaii, the current uncertainty surrounding the volcanic eruption on the Big Island is yet another example of a natural event that has led to reduced tourism dollars for local businesses by forcing cruise lines to reroute their ships. The upheaval caused by these dramatic natural events provides strong evidence concerning the need for cash flow planning and analysis.

Customer updates

As a small business owner, taking the initiative to update customers on a continuity plan demonstrates a proactive and committed approach. Customer loss can have a lasting effect on any organization that has inadequately prepared for lengthy business disruptions. To maintain customer relationships through a crisis, you can communicate with clients in a variety of ways — by updating website information, using social platforms, or by phone. Providing alternate methods of communication before a business interruption encourages customers to reach your business in case of an emergency.

Business continuity planning is crucial because any extended work stoppage can result in significant financial losses. A BCP, even if never used, can offer peace of mind, and encourages the business to assess the impact of potential crisis situations. Once a plan is in place, test and review the strategies periodically to ensure your business is equipped to handle any negative event that could affect your operations. Learn more about BCPs and their growing importance here.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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