Your Contingency Plan May Save Your Business From Failing

Introduction

The weatherman the night before predicted heavy rainfall but I did not think anything of it. Yesterday I just had delivered to my shop $25k worth of computer equipment and it was all in boxes on my shop floor for me to sort through. Never did I expect the area riverbank to burst and my shop to get flooded. Everything on the floor was ruined including much of the stock I had just taken in. What was worse is that my property did not have flood insurance. The clean-up manager said, ‘you have a contingency plan?’ I did not. I felt gutted.

Have you prepared your business to withstand the effects of fire, flood and theft? Global warming, natural disasters, operational challenges and pandemics can all cause massive disruptions in your business continuity, supply chains, investment flows and markets. Who would have expected the 2020 Covid19 knockout punch and in particular what it did to the Caribbean travel and tourism industry? The lockdowns caused a standstill with planes in hangars, cruise ships in ports and with no travellers, hotels empty.

What is a Contingency Plan?

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According to the Cambridge dictionary, a contingency plan is a plan that is made for dealing with an emergency, or with something that might happen and cause problems in the future. More simply it is your Plan B. A roadmap that outlines your response in the case an adverse event, natural disaster or unexpected financial burden, were to occur.

A Contingency plan is a component of risk management. Make it a part of your business plan to ensure that all bases for potential catastrophe are covered. For instance, consider how to respond to the unanticipated loss of one of your main suppliers.

Every business faces unexpected events so they must attempt to predict what they are so that they can prepare accordingly. The key to identifying what risks are out there, Furthermore, how they can impact you is conducting an extensive risk assessment.

At a more micro level, external shocks like these can be even more impactful on black Micro and Small Enterprises. Particularly those which traditionally lack proper support structures. This can lead to a higher likelihood of business closures, staff layoffs, the wiping out of savings and an overall increase in the cost of doing business.

The US Federal Reserve asserted that in April 2020 nearly half of black-owned small businesses had been wiped out due to the pandemic. Further, that black owned businesses were twice as likely to shutter than their white counterparts.

Purpose of a business contingency plan

Given the foregoing backdrop, one question that swirls is what should a contingency plan for your online business in the case of crisis look like? Most SME’s would agree that this subject is important. Yet most have not gone further than having, or hoping a family member could take over if something adverse occured.

If you are in this category, you are not alone. If you are not fully satisfied with your current state of risk, then you may wish to understand how to flesh out the constituent parts of a contingency plan. A template of sorts that you could utilize if you so desired. Risk can be divided into two parts. First, the probability of something going wrong, and second the impact of the negative events if it does.

When your business is on the verge of collapse, it’s really important to have a contingency plan in place. If something goes awry with any of your business critical activities, like an interruption in power or internet access, you can still be productive and profitable and resume your normal business operations quickly.

What is a Crisis?

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The first thing that must be agreed, is what is a crisis? According to Wikipedia, a crisis is any event or period that will lead or may lead, to an unstable and dangerous situation affecting an individual, group, or all of society.

What then are the types of crises or risks that could affect your micro and small business?

A leadership crisis

happens when a significant business owner or leader disappears from the business without anyone else to take over. The absence could be due to death, prolonged illness, surgery, separation, other commitments, etc. Who would develop or continue the business strategy? What about who would pay the bills? Any takers on who would negotiate business terms? Who would oversee the brand strategy? Who would engage the key customers?

Many black MSE’s come to a premature end when no succession plan is instituted in anticipation of the loss of the business leader. Your business contingency should consider the risk of loss of leader. Furthermore, it should assess factors that would impact upon a strong successor.

According to a South Africa International Journal of Business Administration study in 2016, factors that affect the suitability of a successor include competency, commitment, age, the relationship between the incumbent and successor and support. A technological crisis occurs when there is a breakdown in the technology and systems that we operate in the business. For instance, if your computer hard drive is corrupted and you cannot access your information, or worse you lose your data, what backup plan do you have in place? Do you have backup external storage? Do you perform regular maintenance on your equipment? These are the types of questions your contingency plan would respond to.

Financial crisis

This typically happens when there are not enough funds to pay debts or expenses. Being unable to continue monthly commitments like a mortgage, rent, utilities, staff and general upkeep can really stymie a business. Worse it can strain business supplier relationships.

Under these circumstances, urgent action is required to obtain immediate funds to stabilize the business.

Almost in parallel, a review of significant outgoing commitments is made along with sourcing long-term financing to allow the business to continue. In extreme circumstances, the business may require protection from creditors and may have to declare bankruptcy.

According to a US Local Economic Impact Report commissioned by Yelp 97,966 businesses were permanently shut down during the pandemic. Given a similar scenario, your contingency plan should consider strategies that would mitigate a weak cash position, strengthen banker relationships, close funding gaps and improve investability.

Legal Crisis

A customer slips on your wet shop floor. A staff member hits your business with a wrongful dismissal lawsuit. A contractor is taking you to court for non-settlement of outstanding fees. The government is garnishing your income for non-payment of taxes. Depending upon the amount claimed and your capacity to pay, these types of legal challenges can cause businesses to stumble. In many other instances even fail.

To compound matters, there is a brand risk that the company is subjected to arising from negative publicity which comes along with these types of alleged infractions. Not to mention the cost of hiring legal counsel and the entire process of going before the courts.

A forced Takeover crisis

A forced takeover means your website is hacked or captured by persons unknown. This type of crisis can also occur if your website falls victim to a virus that makes it inoperable. Or compromises your customer’s confidential data.

While we would never wish any of these crises to occur, they are real and should not be wished away.

Ways To Mitigate A Crisis

Now that we understand how a crisis can have a potential impact upon our business continuity let’s try to outline some step-by-step remedies. These remedies could assist if a crisis were to actually occur.

Learn To Share The Load

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Our businesses are like our babies. We feel that we are able to do the majority of the work ourselves and that no one can do it as well as us. We have the training and experience on how to run most aspects of our online business.

While we wish we could always be superheroes, crises will occur that will knock us out. We, therefore, have to put in place someone to take over. If not fully at least part of the more routine parts of the business.

You have a few options. You could train up a family member, engage a Virtual Assistant/ Contractor or hire an employee. These options could allow delegation for, particularly time-consuming and mundane tasks. You have to determine what option, if any, could work for the potential business crisis situation(s) that you could face.

Embrace Automation

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Absent staff can negatively impact work. To avoid this there are now numerous apps that could assist us with automating customer responses (e.g., auto-responders), billing (automated invoicing), customer queries (e.g., chatbots) and social media sequencing (e.g. Facebook business).

These are all wonderful inventions, however for them to work well you have to develop the forms, the email templates, the standard invoicing, the graphics and responses to standard questions.

Include Effective IT Contingency Plans

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An IT contingency plan should be accessible to all relevant parties at all times. A cloud-based system would allow for stakeholders to access the same information no matter where they are. Furthermore, the cloud better protects data from modification by malicious actors or malware. This way every stakeholder has an equal opportunity when planning how best to proceed in an emergency situation.

A good way to keep the network stable is to host your plans elsewhere. This prevents an IT incident from bringing down both corporate networks and those used for remote backup, data recovery, etc.

Preparing for the Worst

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With the sheer number of data breaches and cyber attacks happening all over, it’s not surprising that SMEs are vulnerable to these potential threats. These small businesses lack a robust digital infrastructure. Consequently, SME’s require strong e-infrastructure to block hackers or other nefarious forces intent on destroying their company. Up-to-date backups are also necessary to protect information. So that when disaster hits, this will help speed recovery time tremendously.

Sharing Ownership and Responsibility

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Early in the business, we may not have any reason to consider one or more business partners. But that may not be a bad idea if you start to scale and there are many more responsibilities that you would need to effectively manage. Creating shareholding and governance structures in your business will lead to more assistance and procedures in times of crisis.

Once trust is established with key partners part of sharing involves holding similar levels of authority (e.g., website administrative privileges, bank account signing permissions, etc.), knowing passcodes and other pertinent account info. All this information (login details, business credit card info, confidential client info, etc.) should be documented and stored in a secure space for easy retrieval if it comes to that.

Have Back-Up Systems

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How many of us had or know of someone that has lost all their data due to a crashed phone or laptop. This can be an extremely harrowing crisis and take quite some time to rebuild/ recover if ever. To prevent this, we now have cloud computing, backup storage, virus protection and more. By conducting routine back-ups of your data better assures recovery of current information. Your backup systems should preferably be automatic and can be both on and off-site.

Have Reserve Funds

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Can you identify critical monthly payments? Payments that will ensure that your online business goes on uninterrupted. If this is so and you can afford it, setting aside a 6-month reserve provides a cushion if a cash crunch or crisis were to occur. You can automate the process by setting up a bank standing order or automated payments from a credit card. Remember that the reserve account works best when routinely topped up with funds.

End of Life Instructions

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While we may never wish to consider this, death is a reality that we can never anticipate. We can however articulate what we would like to happen in the event of our untimely demise. Two ideas that immediately come to mind are a Cover Sale Agreement and an old-fashioned will. In both of these, you can clearly lay out to your Estate Executors what you would wish to happen with your online business upon your demise.

I saw instances where these types of instructions were not left in place and persons who would have otherwise benefited from the business are overlooked due to Intestate laws (law when there is no will).

Conclusion

What often happens during a crisis is panic. This panic can be paralyzing and lead to rash and often poor decision-making. Developing contingency plans ahead of crisis will give you and your online business a better chance of recovery and survival. You cannot plan of course for every crisis, but you can anticipate and put plans in place for the most likely ones that may occur. Can we afford really afford not to?