Five Easy Steps to Draft a Business Contingency Plan

Businesses that made it through the epidemic had to reevaluate their strategies in light of supply chain disruptions, shifting consumer behavior, and shutdowns. It might have been viewed as crisis or recovery planning at the time. Nevertheless, whether on purpose or not, many companies were aggressively developing backup plans.

What is a business contingency plan?

An established strategy or backup plan created to assist firms in responding to potential future occurrences is known as a business contingency plan. You are encouraged to think ahead of time about financial and business methods to mitigate potential risks as part of this contingency planning process. It's essentially a lean business strategy that accounts for unforeseen circumstances that can have an impact on your company.
By doing this, you may be confident that nothing will surprise you. Rather than waiting for a bad thing to happen, you may immediately start managing your firm properly. Larger possible problems like a natural disaster, a worldwide pandemic, or a significant security breach can even be covered by a contingency plan. The following should be covered and addressed in your backup plan:

Financial scenarios

The contingency you are preparing for is the basis for your financial "what if" scenarios. It's crucial to include your anticipated cash flow forecast and profit and loss statements. Modify these financial statements to reflect a possible problem so you can decide on the best course of action. Do you need to adjust your price or are goods and services becoming more expensive? In the event that the contingency involves higher petrol prices, should you apply a fuel surcharge?

Strategy adjustments

Understanding the financial effects is the first step. Next, you’ll need to address how you will adjust your business and marketing strategy to navigate the contingency, you are planning for. This is when you go from risk management to creating a plan that helps your business thrive rather than recover.
What changes will you need to make to your staffing, advertising, and marketing budgets? Will you need to change how you sell, market, and support your products and services to address the adverse events? 

Why is a contingency plan necessary?

By putting together a contingency plan and addressing risks to your business, you will be prepared and able to best address those risks when and if they happen. The last few years have taught all small business owners that we have no idea what is ahead. That the best possible way to plan for the future is to be ready for anything. 
A contingency plan for your business will help you step through the what-if scenarios that you might encounter. To start putting together solid plans that will help you overcome risks, fast-track disaster recovery, and even ensure there’s business continuity in place. 
What if gas prices double, and your run a delivery business? A contingency plan could help you model the financial scenario, make sure you have the right access to credit lines to pay for the increased costs, and plan for the right gas surcharge to add to your customer deliveries. 

How to create a contingency plan for your business

Writing a contingency plan doesn’t have to be a huge or stressful ordeal. All you are doing is taking your lean business plan, and making some adjustments to the strategy and the strategic forecast to plan for uncertainty. Here’s a step-by-step guide to write your own contingency plan.

1. Identify and list the risks

In the past few years, all business owners have experienced risks they never saw coming. Trying to account for everything can be overwhelming and time-consuming. Rather than anticipating anything that could happen to your business, focus on the next few years. 
Start with a comprehensive list, putting everything down that could possibly happen to your business in the next 12-24 months. Loss of an employee, a dip in sales, equipment failure, rising shipping costs, insurance increases, etc. Depending on your business, it may also be beneficial to consider larger unforeseen risks such as natural disasters, cyber-attacks, and economic downturns.
We can all look back at the beginning of the pandemic and learn from the events. Use that knowledge to think about potential future risks and build your list.  

2. Prioritize key risks

Now that you have all those frightening potentials listed, it’s time to prioritize. You need to think about your key risks. The ones that are most likely to happen or will cause the greatest hardship to your business. Realistically you should prioritize no more than 3-5 key risks. 
Remember, you can always use these initial contingency plans to help you explore additional risks. More than likely, several risks will have similar effects on your business functions. It’s much easier to adapt your contingency plans once you have them rather than starting fresh every single time. 

3. Outline contingency plans for each risk

Now that you’ve done the prep work, it’s time to jump into developing your plan. Take your prioritized list and focus on building contingency plans that outline how you and your business will tackle each risk. Here is what you should include in your contingency plan:

Financial forecasts for each risk

This will account for what the risk will do to your revenue, expenses, or both. Having a clear picture of your potential financial situation will help you answer questions such as:

• Will you have enough cash to address the risk? 
• How does the risk affect your ability to collect cash, and pay your bills?
• Are there any obvious costs that you can minimize or cut? 
• Do you need to consider expanding a credit line or applying for a loan?

Don’t worry about creating these forecasts from scratch. Instead, start with your current financial forecasts, make a copy, and adjust projections based on what you expect to happen. Be sure to take note of what adjustments you make. This will make it far easier to update your forecast scenarios whenever you bring in more recent real-world performance data for your business. 

The one-page plan

With your forecasts in place, you can begin to define the actions you will take. Keep things simple and easy to follow by creating a one-page strategic plan for each risk. In it, you’ll address how the effects of each risk will impact your operations, sales, marketing, milestones, and even funding needs. This will help you answer questions such as:

• What strategies in marketing and sales have to be changed or adjusted? 
• Do you have to hire new people? 
• Do you need to reduce costs and expenses to survive the risk? 
• What are the roles and responsibilities required to address the risk?

Document your 12-24 month road map and the key changes you need to implement to keep your business healthy. Keep it lean and actionable to ensure that you and your team will actually be able to use it when the time comes.

4. Connect them to your overall business plan

You’ve considered the risks. You have contingency plans in place that include financial forecast scenarios and a one-page action plan. It’s now time to connect your contingency plans to your overall business strategy and business plan. 
Ideally, you should have a simple, lean business plan that is helping guide your business over the next 12-36 months.
Take this business contingency plan example for instance. If your unexpected event is about a financial risk (such as a dip in sales), connect that contingency plan with your financial plan as a potential fork in the road. You can easily do this same exercise with the two to three more contingency plans you have already built out. 
The end goal is to make this quick and painless so that you can spend less time planning and more time acting when a crisis you’ve planned for occurs. 
Think of it like attachments for a tractor. Where you have all of the right buckets and tools to get your yard in tip-top shape. You’re prepared to jump right in and take on everything from mowing and digging to laying down new gravel. All you need to do is add the right attachments ahead of time. That’s exactly how you want your contingency plans to function with your current plan. 

5. Share, review and revise

Once you have integrated the contingency plans into your overall business plan, it’s time to get your team on board. You want to be sure that they understand the ins and outs of your business plan, and how each contingency should be executed when the time comes. 
So how do you get your team on board? Try these three simple steps:

1. Share the plan with the contingency plans integrated into the appropriate places. 
2. Invite team members to a meeting where you can present the business plan, the potential unexpected events your business might have to face, and the contingency plans that outline how you navigate around them. 
3. Set the expectation with the team for regular, monthly review meetings. This is where you can review business health, compare actual results to the planned results and assess the need to implement a contingency plan.

Preparation is everything

All of the hard work is finished. You have a plan and have considered the possible obstacles that your company may encounter. Now that you have a regular review program in place to keep your firm on track, your team is motivated and involved. Now all you need to do is put your lean business strategy into action, keep an eye out for roadblocks, and be prepared to utilize your backup plans as needed. You may compare your actual results to your plan and make necessary revisions to it during your regular review sessions, so don't worry.