This article was originally written for my column for Inc.
In the wake of the recent cyber attack on Change Healthcare, many healthcare providers could not process and collect revenue. This incident serves as a wake-up call for businesses in all sectors, emphasizing the need for robust business continuity planning and financial resilience. Here’s how your business can prevent a similar fate.
1. Implement a backup plan for invoicing and collections for business continuity.
The first line of defense against operational disruption is a solid backup plan. As a green CFO, I had a point-of-sales system fail during the busiest week of historical sales. The backup system at the time was carbon copies of credit cards, which is not great but better than nothing. I quickly looked for alternatives and implemented an alternative credit card collection process after that failure.Â
For industries like healthcare, where regulations and data sensitivity are paramount, engaging with service providers is crucial to understanding the backup systems for invoicing and revenue collection. For industries with more control of their revenue cycle, using an accounting system payment, such as QuickBooks, as an alternative is a reliable and secure alternative process that can keep the cash flow steady even during system outages.
2. Secure a line of credit to cushion financial shocks during a disaster.
Access to a line of credit can be a lifesaver in times of financial strain caused by unexpected events like cyber attacks. I advise clients to secure a line of credit sufficient to cover two to three months of fixed operating costs, which include payroll, rent and fixed costs of sales. Obtaining this financial buffer during favorable economic conditions is typically more feasible and can provide essential support during challenging times, helping to maintain operations until normalcy is restored.
3. Build a strong cash reserve.
A proactive approach to financial management involves building a cash reserve. I recommend that clients start saving the equivalent of one month’s fixed operating costs and gradually increase it to two or three months’ worth. The cash reserve offers a significant buffer against sudden income disruptions. This reserve acts as an additional layer of security, ensuring that your business can withstand unforeseen financial pressures without immediate recourse to external funding.
The cash reserve also allows you to capitalize on opportunities, such as hiring a new employee before revenue exists or acquiring an ancillary business. I used my cash reserve in my consulting business to acquire a software company, FinDaily. Building a cash reserve for opportunities is one reason why Warren Buffet has a record cash pile in Berkshire Hathaway, which he affectionately refers to as his elephant gun.
The cyber attack on Change Healthcare is a stark reminder of the ever-present cyber risks facing businesses today. By taking proactive steps such as establishing a backup invoicing system, securing a line of credit, and building a cash reserve, businesses can enhance their resilience against future cyber threats and ensure uninterrupted operations, regardless of the challenges that may arise.
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