A contingency plan is simply a proposed implementation plan that is triggered by some event, emergency or new information. The event or emergency may or may not happen but is liable to create significant business problems, potential or real liabilities if not dealt with quickly.
Every business plan is based upon specific assumptions that you believe are true such as certain facts, projections and market trends. Your contingency plan simply outlines in advance what you will do in the case that a significant event, market shift or other major assumption changes.
When writing your business plan it is VERY important to examine all your major assumptions and seek to get them verified or confirmed through some trusted third party for accuracy.
Writing a contingency plan would involve reviewing the assumptions you have made in your business plan. Then select those which are general or have NOT been verified or confirmed for accuracy--then write a plan for what you will do to compensate for the changes and shifts to minimize the impact on the businesses viability.
- What would you do if you do not reach your sales and revenue targets?
- If you are borrowing heavily and interest rates suddenly increase what would you do to compensate for the increased costs?
- What is your contingency plan in the case of a major storm or other disaster that interrupts your cash flow?
- What will you do if a key staff member suddenly becomes ill, quits or dies suddenly?
- What is your plan if the health board closes your hair salon?
- What is your plan if utility, fuel or raw materials suddenly increase in cost?
- What will your contingency plan be if a customer gets cut by a hair stylist or burned by improperly applied perm chemicals?
There are numerous assumptions in every business plan--I would suggest that you sit down and make a list of all the key assumptions in your business plan.
First, prioritize each one in order. Examine the negative impact--what the event(s), trends or problems that could arise.
Second, describe what characteristic, trend or issue would cause a significant change in your assumption that, if left untreated would cause your business to fail.
Third, list what you plan to do to compensate or adjust to keep your business viable and profitable.
No matter what you do and how diligent you are--you will likely miss something in your plan.
I remember, getting my hair cut and the stylist narrowly missed cutting my ear with the scissors. Instead she cut herself (thank goodness). She was alone in the salon and had no first aid kit--luckily someone happened along and ran to the drug store for bandages while she kept cutting my hair!
I was tempted to jump out of the chair--but my hair cut was only half done! And I had plane to catch the next morning. Needless to say she bled all over the place but managed to finish cutting my hair.
For example, in the early 1970¹s few people thought to create a contingency plan to deal with the impact of skyrocketing fuel prices.
In the 1980¹s few would have thought that interest rates could climb above 20 percent.
Could anyone have predicted the disaster inflicted by terrorists on the World Trade Center? You can bet that from now on business plans for office buildings and towers are now going to be forced to have a contingency plan for the crisis, damage and business interruption due to terrorist attacks and acts of war.
Imagine the worst possible thing that could happen to your business. Make your list, check it twice. Then write a plan on how you would deal with the situation.