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Why Effective Entrepreneurs Always Have a Contingency Plan

Why Effective Entrepreneurs Always Have a Contingency Plan

A major supplier closes shop. A change in tax law cuts your net revenue by tens of thousands a year. Your engineering team can't make a feasible model based on your vision. A competitor beats you to market. All of these are potential pitfalls an entrepreneur may face. The ones whose companies survive and thrive are the ones with effective contingency plans.

What's The Worst That Can Happen?

This is a question you need to ask when creating a contingency plan for your company. Plan for eventualities that involve everything from a criminal investigation to natural disaster to the deaths of key personnel in your company. By having an executable plan for everything that could possibly happen, you have the security of knowing that you can survive anything that is thrown at your company.

Related: The Other Side of Entrepreneurship

Identify Key Personnel

Start by making a list of every key individual whose participation is needed to continue delivering a minimum level of service to your clients.

Create an outline of each individual's responsibilities. Determine how each could be taken care of if that team member was, for whatever reason, not in play.

Determine Your Vulnerability To Disasters

What are the most likely disasters that could befall your business? Which are the most damaging? Make lists that include each. For instance, if your headquarters are on the Eastern Seaboard in the US, you are at risk for hurricanes each summer. A company whose main supplier is in another country can be vulnerable to changes in government or extreme currency fluctuations.

Once you have determined your risks, it's time to prioritize. The events that can do the most damage and the ones that are most likely to happen should get the best-developed plans. This way, you are prepared for the worst and prepared for the challenges you are most likely to face.

Make An Action Plan

What will trigger your move to the contingency plan? The plan should include a list of events that will make a move to contingencies necessary. Waiting too long to pull the trigger can result in serious losses while your company is still regrouping.

Identify a chain of command so that everyone is doing what they need to do when they need to do it. Make sure that nothing in your list is hypothetical. For instance, if you need for someone new to have check-signing privileges to make your contingency plan work, make those arrangements now.

Make sure that your plan is available remotely and that it contains all of the information you will need, such as vendor phone numbers and emails. Your plan does you no good if it's in a binder in the office building that just burned down.

Communicate The Plan To Every Necessary Person

Hold a meeting where you go over every aspect of each contingency plan. Let people know what will be required of them. Ask people for input on the plan. Often, support staff and other individuals can identify holes in a plan or better options. By going through the plan with your whole team, you can fix anything that you missed to create a more effective plan.

Related: 6 Qualities of Great Entrepreneurs

Revist Your Contingency Plans

Contingency planning is not a task that can be taken on once and then checked off the list. Your personnel and their roles will change. You may switch suppliers over time or add new ones to your list. You may change locations, which can eliminate some risks but introduce new ones. Look at your plan each time your company goes through a major change or at least once a year if there have been no major changes. Keeping this plan up to date means making it far more effective.

The companies that plan for the worst are more likely to weather unexpected pitfalls. The way you react to a disaster can make all the difference in the health of your company or whether it continues to operate at all. By adding a contingency plan to your assets, you can ensure that your business continues to operate smoothly and that you can stay profitable and continue to grow even in the face of adversity.

 

Topics: Entrepreneur, Business

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