Rudi Kotze, Head of Legal & Compliance at KGA Life
These are strange and frightening times that we live in. The nationwide lockdown ordered by President Ramaphosa has hit the Financial Services Industry hard, with many businesses facing increasing operational and cash flow related challenges.
This has again shone the spotlight squarely on disaster management– and business continuity plans, especially for small and medium size businesses.
Whilst, nominally, planning for the future makes sense, smaller entities are often faced with challenges relating to capacity or availability of resources, not to mention financial constraints. There are only so many hours in the day and there are always more urgent matters that require immediate attention. Unfortunately, unforeseen events or ‘disasters’ often have a much greater effect on smaller businesses, and it is therefore of the utmost importance to understand your business’ potential vulnerabilities and plan accordingly.
In terms of the new Fit and Proper Requirements (Board Notice 194 of 2017), Financial Service Providers are required to have a governance framework that should include a business continuity plan. Of particular importance is that the governance framework must be appropriate for the nature, scale, risks and complexity of each business. This means that, as a business owner, you need to consider which plans or strategies are most appropriate for your business.
Of further consideration is the fair and appropriate treatment of clients in the event of an unplanned disruption. Each business should consider its plans for business continuity in light of the needs and requirements of the clients that it serves, and the potential for such clients to be impacted by a disruption to the service that the business providers.
Business continuity policy
A business continuity plan effectively boils down to a strategy for dealing with the interruption of systems or processes and stipulates a planned reaction which allows continued effective operation of a business. This is relevant both in the short- and longer term.
For instance, in the short term, a business has to consider what happens when its office or premises is not accessible for a period of time. Is the business able to function remotely, both from a hardware and a personnel perspective? Similarly, what happens if the owner of the business, or another key person in the business, is suddenly absent for a period of time? In the longer term, the question of matters such as succession or the effect of competition in the market need to be considered.
Most business use some form of ‘equipment’ to ensure that it is able to function effectively. This may range from the simple use of computers or a payment system to complicated technology-based solutions which allows a business to automate large parts of its operations. In most instances the potential for interruption exists and it is therefore of absolute necessity to plan for such events.
It is important for businesses to consider the potential short-term unavailability of equipment and the impact such an interruption would have. Secondly, a business continuity plan should consider ways to, in the short term at least, enable manual operation of processes that are usually automated, as well as plotting the most efficient approach to restoring the various processes.
In the longer term, the question of succession is the most relevant one. Many business owners are faced with the challenge of planning the continuation of his or her business, firstly, after retirement and secondly after death.
In this regard the structure of a business also becomes relevant. A Sole proprietor for instance will cease to exist when the Key Individual passes away. In this regard it is important for a business owner to not only consider his or her own well-being, but also the financial well-being of his or her dependents.
As noted earlier, each business also has a responsibility towards its clients and, specifically, to ensure that they are suitably taken care of after the retirement or passing of the owner of the business.
Maintained… or recovered
It is important to acknowledge, and prepare for, the fact that many interruptions may be too severe for operations to be maintained. Irrespective of how well considered a business’ continuity plan is, there may be instances where operation will come to a grinding halt. A good example of such an interruption is the COVID-19 nationwide lockdown.
For many businesses the nationwide lockdown caused a complete shutdown of operations and, in instances such as this, the continuity plan should consider how to lessen the impact of such an event and, importantly, how to shorten the period where operations are completely shut down. It is worthwhile considering whether the business can still remain partially operational, or whether there are some tasks that can be fulfilled in advance and anticipation of the resumption of business.
In this regard, it is also important to make financial provision for the possibility of severe short-term cash flow challenges and to plan for such an event, including considering the impact on the owner of the business, staff and service providers.
Business continuity plans vary in application, with some aspects having to be addressed during the planning phase, whilst other simply relate to a pre-planned course of action in the event of an unanticipated occurrence. As previously touched on, business also have varied access to resources and potential continuity concerns.
It is therefore most important for each business to consider where it is most vulnerable and put the necessary structures and procedures in place to cater for the inevitable challenges that are thrown its way. This should ensure that businesses are able to survive shorter term challenges and emerge well placed to recover in the shortest time possible.
Think insurance. Now think again.
Western National Insurance Company Ltd, affiliates of the PSG Konsult Group, are authorised financial services providers. (FAIS: Juristic Reps under FSP 9465)