A contingency strategy helps to lessen the impact of lingering business risks, and most prominently safeguards your organization from bankruptcy. It is more like a backup plan to help businesses to cope up with uncharacteristic or undesirable changes.
This pre-plan guarantees that your company can bear its daily operations and facilitates you to deal with the inner and outer threats. The bottom line is that a contingency plan is designed by taking into account several unpredictable possibilities that can occur, but the company can be protected and the production continuous without fail.
The business aim of the company is planning strategies for success, but there are many variables that have to be incorporated internally and externally. Furthermore, determine the ones that can directly hit the business now or in the future. However, there are common inconsistencies that impact all businesses. These are the unpredictable situations that must be incorporated in your contingency plan.
Dealing with business cash-flow
The company must first investigate its funds because a smooth cash flow is vital to go ahead in business. Due to recession majority of businesses are struggling to hold their cash balance. Customers are not buying like before and when they ultimately make a purchase there is a delay in their payment.
However, you have to finance on new inventory, but if your collections are poor it will directly hinder your cash flow. Your backup plan must define an alternative financial support. The execution of the contingency plan is the time, when the customer’s payments are extremely late.
External influences
Since, the SWOT analysis has been recognized; many companies are using it as a strategic tool. The strength, weakness, opportunities and threats are recognized. The other business tool is the PEST analysis, which stands for the political, economical, socio-cultural and technological ups-and-down.
All the above variables carry a likelihood of affecting your business operations. For example, changes in tax laws, government regulations and codes can elevate or reduce your production costs. Weakening economic conditions can lessen the profits. Changes in customer’s age can cause a change in customers taste and choice as well. Finally, a challenging technology can outdo your product and destroy your market.
Natural calamities including storm, fire, flood and earthquake are unpredictable. Your town may be having a highway or there may be a road diversion, which can also hit your business because these brought the customers to your business base. You will have to deal with this entire situation with a follow up plan. All these inconsistencies must be clearly outlined and defined.
The next step would be to decide when to implement your ‘follow up’ plan.
Your continuity plan must also take into account prolonged revenue losses or an increase in your expenses. Define the triggers and then plan to deal with the two scenarios. For this you will have to understand your business cycle and design a continuity plan.
The decline in revenues may be related to competitors, new technologies, change in customer’s preference and what does your product offer. If these losses are likely and follow your usual business cycles then the seasonal pattern need to be defined. If the losses go ahead of your implied business cycle then this is a signal to execute your backup plan.
If your company encounters a lingering increase in its expenses then it may be due to the rising cost of goods that are related to your product. The first sign that is missed by many business owners is the gross profit on sales that has begun to lessen due to increase in expenses. So, a baseline of the gross profit expectations regarding the sales must be defined. The indication for implementing the emergency plan is by considering the total amount below the baseline.
Therefore, it is sensible to be prepared for the most awful scenarios that can be faced by your business. Remember that in the current economy no one is totally safe, so be equipped with a backup plan.
Paul is an ardent author who writes on best business practices. Many of his readers have found his write-ups to be very useful to them. He also writes about roof sheets for agricultural buildings.
