How Can I Write an Efficient Contingency Plan for a Small Business?

As a business owner, you’ll need one or more contingency plan(s)! You’ll inevitably be taking certain risks with your business venture. You will often have to examine and decide between different methods to help your business grow and reach its full potential.

But what if the worst-case-scenario actually happens?

If this occurs and you don’t have a contingency plan in place, your business may suffer significant losses, sometimes resulting in insolvency and forcing you to shut down your entire enterprise.

That is why providing for measures to prevent these risks is crucial, especially when you’re just starting a business, because most of the times, you won’t have sufficient funds to absorb the loss of capital. That is why we recommend that you look into your contingency plans as soon as possible, even before you launch your business.

In this article, we are going to guide you step by step to help you make the best contingency plans possible to protect your small business from potential threats!

What is a contingency plan?

A contingency plan defines the course of action to follow if a disaster occurs.

It’s a recovery process to restore your company’s critical business functions that includes the key procedures for responding to an emergency situation.

You can see it as a set of instructions prepared in advance to allow your business to operate despite the disaster.

Keep in mind that contingency plans vary depending on the business type, but also the disaster types, so you will have to write a contingency plan for each threat you can identify.

To help you, here are the key objectives of a contingency plan:

• Facilitate timely recovery of core business functions
• Protect the well being of employees, their families and customers
• Minimize loss of revenue or customers
• Maintain public image and reputation
• Minimize loss of data
• Minimize the critical decisions to be made in a time of crisis

List and prioritize risks

Start by listing all your priority resources. Ask yourself which ones are essential to keep your business up and running : upon which does the functioning of your business actively depend?

When this first part is done, list the possible risks related to your priority resources.

First and foremost, we recommend that you look into these key areas to find the specifics resources and risks to your business:

• Banking: what happens if your bank doesn’t agree to refinance a business mortgage or you lose an important investor?
• Partnerships: what happens if you lose your best customer?
• Purchasing: what happens if a key supplier goes out of business?
• Staff: what happens if a manager leaves without notice or you need to hire due to an unexpected surcharge of work?
• Sales: what happens if you lose customers resulting to a communication blunder or if your best salesman quits?
• Natural disasters: what if a flooding, a forest fire or a hurricane strikes?

Conducting a SWOT analysis, as well as getting help from an outside eye like your accountant or a business consultant may help you identify threats you haven’t seen before.

Once you’ve got your list, establish an order by ranking risks from 1 to 10, first by impact, then by frequency (how often is it likely to happen). Finaly, multiply the two scores for each risk to see which scenarios you have to focus on first.

Establish scenarios

You’ll have to make one for each risk you listed.

The goal when writing a scenario is to outline the techniques you will use to lower the impact of the risk should it occur.

Before you start writing, define triggers. Triggers are events that indicate when to activate each plan. Check in with those indicators at least on a weekly basis, if not daily. It will allow you to identify potential crisis and act before it grows into something too big to contain.

Once you’ve got the indicators set up, you can start describing how to execute the plan. Your sentences should be simple and the instructions easy to follow by everyone since you don’t know neither when or who is going to use it.

When writing, be careful to respect these 3 rules:

• Timeline: don’t forget to time the actions you’ll describe.
• Communication: name a person who will coordinate communication with the team responsible for the execution of the different steps of the plan so that everything runs smoothly.
• Staff needs: define how much staff is needed for each part of the plan.

Name leaders for each area of the contingency plan and inform them of their responsibilities. A helpful idea is to write one-page plans and then ask each of the leaders to elaborate his part more precisely. It also helps to as an objective, outside party to read over your plan.
And be sure to pay close attention to the saving and storage of these plans! Store them online and offline: if the power cuts out, you may need a hard copy. Store a copy onsite and offsite in case you can’t access your company’s offices.

Make regular updates

Quarterly check if your scenarios are still up to date: watch out for new regulations and update the responsibles’ contacts informations if needed.

Once a year, take the time to consider if your business is exposed to new or different threats. Indeed, the threats your to which your business is exposed can change when you reach new stages of development or if there are changes in market conditions.

Reduce risks

When you know which risks you’re exposed to, you can take active measures both to prevent them and to know what course of action to follow should they materialize. Think about finding alternative sources of credit, take out the right insurance, and protect your data in case of breach, and more.

As you can see, establishing contingency plans for your small business is an essential step that will allow you some added peace of mind when starting your business venture. We encourage you to start working on this as soon as you finished your financial business plan for which you can download a template here.