While you might use the phrase, “Plan B” as a humorous reference in your personal life, it’s important to have backup plans in your business to prevent serious problems that could damage or ruin it. Most of the strategic plans you make are probably aimed at helping make a profit and keeping your doors open. If they fail, you are less likely to be able to respond quickly enough if you don’t have a contingency plan. As counter-intuitive as it might seem, planning for failure can be just as important as planning for success.

Minimizes Damage

A contingency plan helps you quickly take steps to address a problem that could stop production, shut down your website, cause you to lose work and data or miss credit payments. A simple example of a contingency plan is having a backup generator in the event of a power failure. If you lose a large customer that’s responsible for much of your sales, a contingency plan will help you quickly reduce your workforce, cut your overhead and production spending and seek other sales to replace as much of the loss as possible.

Reduces Bad Public Relations

Even if you’re a small local business and your operating problems won’t make headlines in your town’s newspapers, competitors might start spreading rumors and customers might start to worry if you run into serious trouble. A contingency plan that helps you address a problem or get back on your feet allows you to communicate your response to a problem to relieve any concerns that problem might create. For example, if a key employee leaves, your contingency plan should include having a successor identified or a qualified substitute ready to fill in, even temporarily. This will allow you to let stakeholders know your employee’s departure will not affect your operations, that you will have a full-time replacement in position within a short time and that you have position covered until that time.

Keeps You Operating

There are many factors that can cause you to temporarily stop your operations, including a lack of working capital, machinery breakdown, office shutdown or strike. Contingency plans can help you keep operating through a crisis. A cash reserve or open line of credit can help you weather poor cash flow. The ability to transfer your production to another location or outsource it during a machinery breakdown or weather emergency lets you keep fulfilling orders. Backing up your data offsite each day allows your staff to continue their work without losing important work or access to files.

Improves Insurance and Credit Availability

Businesses that create continuity and disaster recovery plans often have an easier time getting insurance and credit than those that don’t. Being able to show your insurers your contingency plans can help you obtain better coverage and reduced premiums, because the less money an insurer has to pay after an accident or emergency, the better risk you are. For example, if you back up all of your data each night, you will have a smaller loss from a fire or robbery than you will if you have to re-create all of your website files, customer databases and other data. In the event you need credit to help you through slow sales because of the loss of a supplier, a lender might be more willing to help you with payroll if you show you have another supplier identified and ready to get you back up and selling.