As a business owner, you have a lot of control over your financial health. Committing to best business practices can ensure positive growth and prosperity. But unexpected circumstances can occur and derail day-to-day operations. Crises such as natural disasters, injuries or death, sudden windfall of cash, cyber-attacks, equipment failure and fraud can unhinge the stability of the company. That’s why it’s important to have a comprehensive contingency plan in place to limit the risk of financial loss.
A financial contingency plan refers to your course of action in times of financial crisis. In particular, it should focus on allocating finances and resources. For small and large businesses alike, a financial contingency plan acts as a lifeline when the health of your company is at risk.
Rather than fearing the worst, organizations can implement effective and practical strategies to help them remain operational in the event of unforeseen circumstances. Even if you think you won’t use it, putting in a little bit of work now will pay off in the long run.
Here are six simple steps to help you plan and execute your financial contingency plan:
Consider the potential risks
No business is the same. Depending on your company structure and assets, there’s a number of potential risks to look out for. Fortunately, some risks are relatively easy to anticipate. Does your business’s location put you at risk for hurricanes or earthquakes? Would a data breach hurt your operations? What about changes in the workforce, like maternity/paternity leave? It’s a good idea to determine which risks are likely to occur for your business and how you can contain them.
Create a list of your priority resources
What crucial resources do you need to secure in order to keep your business from folding in times of financial distress? It’s important to pinpoint operational essentials like equipment, connectivity, records, and even key stakeholders so you can prepare a thoughtful action plan.
Identifying suppliers, vendors and facilities early on in the process can help keep your business running when provisions fall through. Decide what is absolutely necessary to continue business operations, and ensure those resources will be available when you need them.
As the business owner, your team looks to you for leadership and management. But when you’re busy handling emergency situations, your team needs to know how to stand on their own. Identify employees’ abilities, and delegate responsibilities accordingly. Assign who will have access to documents to act upon and define roles for specific events like cyber attacks and evacuations. Creating a step-by-step plan of action will help set expectations and provide clarity in an event of a disaster.
Identify alternative sources of credit
Having proper alternative sources of credit will go a long way to protect and maintain your business in the heat of a crisis. For example, at Business Bank of Texas, we recommend adequate cash reserves to meet your day-to-day needs. If needed, we also recommend you have lines of credit and secondary sources to use. Depending on your business, consider different types of insurance to mitigate disasters or data breaches. As the range of finance options will change throughout your business timeline, it’s a good idea to revisit this plan on a quarterly basis.
Back up your data
With so much of modern business supported by computer networks, a loss of data can cripple your business financially. From cases like hacker attacks, ransomware or natural disasters, data loss can happen when you least expect it. For most companies, losing sensitive data relating to clients and customers is not just inconvenient; it’s also a threat to the company’s reputation and security.
Backups help you rebuild your network and system no matter what happens so you don’t have to start from scratch. For peace of mind, ensure that data is backed up with a trusted provider or cloud storage location. Go the extra mile and encrypt it to secure records and information from theft.
Review and update process regularly
In times of innovation, economic shifts and workforce changes, business models and structure will continue to transform over time. This means it’s crucial to review and update the process in your plan regularly to account for any new policies, economic factors, or other issues relating to your business. It’s wise to check back every six months or so to go over the details in your plan.
Benjamin Franklin once said, “by failing to prepare, you are preparing to fail.” An investment in planning today protects your business investment and livelihood for years to come. Putting plans in place provides reassurance, and can save your business in the case of a sudden crisis. If you have any questions or concerns about potential risks and how to plan for them, make sure to talk to trusted advisors (including your banker) for advice about how you can get ready now.