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- What Is A Business Contingency Plan?
What Is A Business Contingency Plan?
With any small business comes unforeseen risks and circumstances. It’s essential to be aware of potential hazards to your business’s security to protect it from disaster. While we don’t have to walk on thin ice all the time, contingency plans are a great way to place a safety net beneath your business and ease anxiety. Let’s dive into the definition of a contingency plan and how a business contingency plan may safeguard your business’s future.
What is the definition of a contingency plan?
A contingency plan is a strategic, preorganized response to an unforeseen situation affecting your business to reduce damage and loss. Contingency planning can better know as “expecting the unexpected.”
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What circumstances should contingency plans be developed for?
While there are many potential risks to small businesses, business executives and financial officers should consider a few main ones. Then, when you begin contingency planning for your small business, ponder how these circumstances might change the future of your business.
- Economic decline. One fear that looms over nearly every small business is the potential for an economic decline or recession to hit hard. Since economic stability is constantly fluctuating, it’s crucial to have an action plan.
- Natural disasters. Acts of God such as hurricanes, tornadoes, and floods are sudden calamities that can bring significant destruction. Business contingency plans won’t prevent them outright but will minimize damage to both people and property.
- Health crisis. The recent COVID-19 pandemic has taught all business owners that extreme circumstances are often abrupt. Disease and health crises are risk factors that may result in a loss of employees, revenue, and potential economic decline.
- Fraudulent online activity. A contingency plan for facing fraudulent activity is essential in your business’s cybersecurity. If your business is active online, it’s consistently at risk for information theft, malware, and hacking.
What does a contingency plan protect?
Creating a contingency plan for your small business is one of the most powerful steps to protect your business’s financial well-being. When you create a contingency plan for your business, you’re preserving both your business finances and employees.
- Company property. In dire situations, a “plan B” is the best way to protect your business valuables, such as land, vehicles, and property. This procedure can include preparing for insurance claims in cases of damage, having storage facilities to contact, and several more steps to take in case of an emergency.
- Time and money. Contingency plans are an excellent way to secure your finances. When a thorough plan is in place, you save time and money in emergencies. Panic and anxiety can result in rash decisions, but when companies follow a contingency plan, they save time by reducing mistakes.
- Company reputation. When your employees aren’t protected in unforeseen circumstances, or you’re unable to meet your customer’s needs, your business’s reputation can be at stake. Possessing a prewritten plan to respond to resource shortages and critical feedback can soften the blow from unhappy customers and clients.
- Human lives. Contingency plans don’t just protect assets— they protect lives, too. In dangerous situations, having an emergency plan for evacuating employees is essential. Preparing a procedure that all employees know of ensures their safety as individuals and your company’s safety from financial liabilities.
What are the key steps of a business contingency plan?
When you prepare for disaster, it’s crucial to be concise and organized. Luckily, we’re here to give you the essential stages of creating a quality plan. Here are the four main steps to effective contingency planning.
- Assess your risks. Determine the possible risks your business may face in the future. Your area’s political, economic, and social climate and trends may hint at what risks are more prevalent. For example, a business in Kansas may be more concerned about tornado risks, while another in Florida may be more concerned with flooding. A financial manager can also assist in evaluating your business and prioritizing these risks from most probable to least.
- Create contingency plans for each risk. Conduct an impact analysis for each potential risk to estimate how much your business would be affected. In addition, state the steps your business will take to recover and reduce harm. Business owners and financial officers can make these business contingency plans in a step-by-step document format that’s easy to reproduce and distribute among your team.
- Assign recovery partners. Once you determine what risks are most important to have a contingency plan for, it’s good to assign trusted partners and employees to the plan. In an emergency, these people can jump into action immediately and minimize loss. Ensure that their role as a recovery partners is specific and clearly understood.
- Educate employees on the plans. Finally, it’s necessary to have everyone involved in the action plan. While the chosen recovery partners will be ready to step in for emergencies, everyone in the business should have access to the contingency plans. Plus, all team members should also be aware of each plan. Employee safety trainings can highlight these contingency plans as priority information for all to understand.
What businesses would benefit from implementing a contingency plan?
Contingency planning is for all businesses wishing to have a backup strategy in sudden emergencies. It’s one of the most thoughtful steps business executives can take to protect their business’s financial health and stability. Executives should develop contingency plans for all small businesses that seek to protect their resources, maintain a positive reputation, and save money. After all, preventing loss is far easier than recovering from it.
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At VFO, we’re on a mission to safeguard small businesses’ finances through even the most challenging situations. To learn more about how our experienced financial officers can optimize your business contingency plan, don’t hesitate to contact us at support@vfo.co.