Deacons Lawyers explain the importance of business continuity planning

Business continuity planning involves the identification of areas of risk and putting in place strategies to minimise the impact of these risks if they eventuate. In the current environment, a significant risk faced by most franchise networks is the prospect of a key supplier or a franchisee (or number of franchisees) ceasing to trade due to insolvency.

All businesses should have a formal and comprehensive business continuity plan in place as part of their risk management processes. The plan should be a simple document that is tailored to the business and provides practical strategies to follow in a crisis. The plan needs to address all the major risks to the business (including fires, floods, storms, explosions and key suppliers or customers ceasing to trade) and have strategies in place to guard against or mitigate these risks.

As a minimum a business continuity plan needs to include:

• an identification of the essential business requirements
• an identification of the major risks facing the business
• an assessment of the impact each risk would have on the business, and
• a strategy to respond to, manage, and recover from an incident

From a contractual perspective there are a number of steps that can be taken to support a business continuity plan. These include:

• ensuring you have a guaranteed right to receive a minimum quantity of key products (or at least guaranteed remedies if supply cannot be guaranteed or alternative solutions to deal with short supply)
• restricting the right of a supplier of key products to cease supply (or at least allowing for a transition period)
• including a retention of title clause in your terms of trade with franchisees to ensure you have a right to repossess goods that have not been paid for, and
• including a force majeure clause in your supply contracts to ensure that you are protected against a failure to supply for reasons outside your control.

Business continuity planning is essential to identify and mitigate against the major risks faced by your business. Preparing for the unexpected and planning to minimise risks in an organisation is a difficult task but one that is becoming increasingly important in the current economic environment. To ensure that all significant risks are identified when establishing a business continuity plan, and that the most appropriate and practical strategies are put in place, a range of stakeholders (including legal and financial advisors) should be included in the process.

By Marshall Bromwich - Deacons Lawyers

Deacons Lawyers are franchise legal consultants that provide franchisees and franchisors with legal advisory services.