The importance of business contingency planning and how to create a financial safety net for new entrepreneurs is often overlooked or underestimated. Having a contingency plan is just as important as having a business plan if you want the business to survive after financial trouble.
Planning for business contingencies should ideally be done when you are writing your business plan, but this is not always possible. There are times when unforeseen circumstances arise which cause the business to become unprofitable, even for a short time. When this happens, the ability of the business owner to create a contingency plan for the business is essential to the survival of the business. Here are a few steps that can help create that plan.
What to Consider First
Think about the top five bills you pay that cannot be missed for the business to continue. These usually involve marketing, taxes, vendors, equipment and physical location expenses. Notice how I listed those. They were placed in order of importance. Marketing is listed first for one reason – to keep the business operational even at a marginal level. Taxes are required unless you want to face stiff penalties, revocation of licenses and other legal trouble. Vendors are third because without them, you are honestly without inventory – regardless of what type of business you have; this can include phone and utility service, supplies, merchandise, material required to carry out customer orders and so forth. Equipment includes upkeep of tools, vehicles and yes apparel that you wear to work. Planning for business contingencies includes keeping these payments up-to-date in order to maintain the business.
Consider Methods of Creating a Plan
Think of questions to ask yourself. Usually the answers to specific questions can help in planning for business contingencies. Here are a few to start with:
- Can you find a partner that compliments you in your knowledge? This would include accountants familiar with your business type or retired persons who know the business but don’t want to be involved in daily operations any longer.
- Can you operate on a smaller scale; and if so, how small can you go within reason?
- Can you move the business location?
- Can you specialize in one area of your business, creating a niche?
- Can you move business online?
- Can you work without a physical location?
Creating a Financial Safety Net For Your Business
Having a part-time job or online sales to compensate for lack of sales at the physical business location is considered planning for business contingencies. Knowing the basic amounts required to keep the business running helps determine how large of a safety net you need or how long you may need it. Look for ideas that can compliment your current business. Deliver pizza or newspapers to bring in extra money. Pass out business cards to bankers and accountants. Maintain solid business relationships with these people because they can become invaluable later. Branch out into alternative avenues that require limited capital. Brainstorm ideas for every possible type of customer your business or product could be used by.
A telescope eyepiece manufacturer in New York started selling to bird watchers after he found out they used his products, and then went on to sell to the military. A restaurant owner in Pennsylvania switched the focus of his failing casual dining business to the bar, then started selling pizza and homemade bread as well since he had the equipment. Working in a related field part-time can yield potential business contacts and leads to future sales or ideas as well as provide needed cash infusions.
Setting a plan into place BEFORE it is needed is always the best option. This allows you to build up a financial safety net for your business. Work the plan so that you have six months of operating expenses set asid
W.A. Swan is a former business owner and manager.