How to Implement a Contingency Plan for Your Small Business
Running a small business requires a lot of planning. From operations to marketing to sales and logistics, there are so many things to consider. If your business experiences a disruption — like a natural disaster, problems with new employees, shipping delay, or other unexpected event — it’s important to have a contingency plan in place so you can ensure everything runs smoothly.
A contingency plan is a plan B for your business to use in case you experience a major disruption. This business document outlines the possible scenarios that can go wrong and offers step-by-step procedures to undertake in order to get things back on track. Contingency planning helps small-business owners to manage their day-to-day operations in the face of adverse events.
Risk management is a critical component of contingency planning. Because a contingency plan looks at all of the possible scenarios that could happen, business owners are able to asses which threats their business faces and can work to mitigate them. By developing detailed action plans for each scenario laid out in your risk assessment, businesses can lessen the risk of losing sales, customers and revenue should a disaster occur.
Including contingency measures as part of your larger business plan also helps investors, lenders and partners to see the potential for a business. If the business owner has thought through the potential risks and disasters he may face and has figured out how to work around those issues, then the business will be able to manage its day-to-day operations effectively.
A contingency plan needs to be tailored toward the business. For example, a backup plan for a café will differ from a backup plan for an e-commerce store, as the businesses have different risks they need to consider. A café may be concerned about delayed food supply or food poisoning, whereas an e-commerce business may be concerned about a postal strike or a warehouse fire.
A contingency plan should include:
- Essential operations that your business needs in order to run successfully, such as product supply and staff.
- Possible threats and disruptive events a business may face, including natural disasters, labor disputes and supply issues.
- Step-by-step procedures for how to work around each scenario. These should be detailed and specific to the business.
- Risk-mitigation steps the business has taken to try to reduce the likelihood of possible disasters.
- Contact information for key personnel like managers, partners, suppliers, investors and anyone else who will need to be aware should disaster strike.
- Communication plan for alerting customers, employees and other stakeholders of the issue taking place.
- List of resources and their locations, such as an emergency kit, backups of business data and insurance details.
The first step for developing a contingency plan is to assess the risks. Consider all possible angles and think of what the worst-case scenario might be for each one. Possible threats that a small business may face include:
- Natural disasters: Depending on where your business is located, you may face floods, fires, tornadoes or earthquakes.
- Cybersecurity attack: Your customer or business data could be hacked online.
- Breakdown of a key piece of technology: Equipment integral to your business may break down or require extensive repair.
- Issue with inventory: Your product may be delayed in arriving at your store, or you may have large quantities of damaged products.
- Robbery or theft: Inventory, cash or expensive equipment may be stolen from your business.
- On-site accidents: A staff member may have an accident at work, which could lead to extensive legal issues in addition to a staff shortage.
- Unplanned departure of a key staff member: A store manager or highly skilled technician may decide to leave with no notice.
- Issue with a key partner, supplier or manufacturer: A valued business stakeholder may decide to discontinue your partnership.
In order to maintain business continuity, it’s imperative to assess the likelihood of each risk and focus on the ones that are most likely. For example, if you’re not located in an earthquake zone, then it’s highly unlikely that your business will be affected by an earthquake. If your store is located in an area with crime, however, you may see the potential impact of theft or vandalism.
After identifying the risks, figure out the goal of each scenario. While the larger goal of the contingency plan is to resume operations as smoothly and quickly as possible, there will be different goals for each disaster. After losing a key supplier, for example, the goal will be to establish a new partnership with another supplier who can provide similar products.
A contingency plan requires a lot of prep work. Once you have established the biggest risks to your business, it’s vital to implement risk-mitigation steps to lessen the likelihood of each disaster. This information should also be included in the contingency plan so it’s clear what has already been done in order to enable smooth operations.
For example, if a convenience store is located in an area where robberies are common, some of the risk-mitigation steps a business may put in place include:
- Installing a security system so that an alarm is triggered and police can be at the scene quickly.
- Installing security cameras so the store has footage of any perpetrators. Cameras can also dissuade anyone who is considering theft.
- Training staff on what to do if someone comes in to rob the store. This will help the staff remain calm and stay safe.
In order to resume normal operations, your contingency plan should outline step-by-step guidelines that the business should undertake if a disaster occurs. These instructions need to be clearly written so that any staff member can understand and execute them in case the business owner is unable to help. Have a set of instructions for each possible threat your business may face.
In a contingency plan for a bakery, for example, one of the biggest threats to the business may be that the supply of ingredients is delayed due to bad weather. If the store has no flour, sugar, eggs, butter or milk in the morning, it will not be able to make its products to sell to customers that day. As a result, the bakery will lose sales and revenue, which could devastate the business.
Steps to alleviate this issue may include:
- Alert the business owner and shift manager. See the contact information on the contact sheet.
- Place the “close” sign on the front door and close the shop.
- Change the phone message to say that the shop is temporarily closed due to supply issues and will open later in the day.
- Update the website with the same message.
- Contact the local grocery stores and warehouse food stores to inquire about how much of each ingredient you can purchase from them today. Keep in mind that other stores may also have a supply delay. See contact information on the contact sheet.
- Once you have arranged to pick up the ingredients you need, arrange with the manager or owner to pick up the supplies.
- Once the supplies have been brought back to the bakery, commence preparing the products.
- Once the products are ready to be sold, update the phone message and the website. Hang the “open” sign.
In preparing for this scenario, the business owner may have made deals with several suppliers should one be unable to deliver products. This scenario would occur only if all of the suppliers are unable to make their deliveries due to bad weather, for instance. The business owner can also establish partnerships with local grocers to purchase ingredients from them as a plan B to help during negative events.