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Entrepreneurs should always be prepared for any risks that might arise in their business. Issues like technical problems, natural disasters, or simply a sudden shift in the market could drastically change the course of the company forever.

As a responsible business owner, one must consider a contingency plan should any of these scenarios come up. As with any business, there are problems that can be anticipated while some are unpredictable. In many cases, these unpredictable events are often the ones that cause the most damage. Having a contingency plan ready, for the most likely situations, is the best way of staying ahead of your competition.


How to Create a Contingency Plan for Small Businesses


Risk Identification

The first step in creating a contingency plan is identifying potential risks. These “risks” vary depending on certain factors such as your type of business, industry, location and more. Here are some general risks that should be considered:


1. Staff

One of the core aspects for a business is personnel. Your staff helps you keep the business going as they perform their daily tasks. There are multiple ways to look at this angle. Some of the more mild scenarios are when a staff member suddenly can’t come to work and you need to find someone to cover for them. Another angle is when problems are caused by a staff member whether intentional or not, such as harassment or gossip. You have to ask yourself how you can protect your workers both physically and mentally.

2. Partners

Having partners for your business is as much a reward as risk. While you have someone to help out with multiple aspects of the business, you’re also opening yourself up to more potential headaches. You have to ask yourself what you would do if a partner were to drop out or suddenly become controlling of the business. You have to be prepared to cut ties or at least have a workaround to get them back on track.

3. Inventory

Inventory risks depend on whether your business actually has important inventory to take care of. Businesses in the food industry will have to be prepared when certain events might cause your inventory to stall, run out of stock, or expire quickly. High value inventory like those in the tech space might also be at risk from physical or IP theft. Even online businesses with digital assets run the risk of compromised security.

4. Technology

As businesses rely more and more on technology to function, there are risks that come with it. Software can be prone to attacks, and newer, safer versions of technology can come at a high price. Identify what kind of technology your business uses. Do you rely on technology to create and manufacture products? Do you use technology to distribute goods? Or is it used for protecting confidential information? These all have their own risks that will cause multiple problems if not addressed properly.


Business Essentials

After identifying risks, you must start looking into the essentials of your business. What should be prioritized for protection is answered by what will keep your business alive. These are 4 general assets for every business to consider as priorities.


1. People

Above all, protect your workers and customers first. Business and profits may come and go, but human life is precious and irreplaceable. Always think of the different ways to keep your team happy, through benefits, reasonable hours, and substantial pay. And keep your customers happy by offering generous return policies or money-back guarantees. No matter how you do it, there’s always a way to keep everyone involved happy and protected.


2. Data

Countless businesses store sensitive records of their customers, including addresses, financial information, even personal preferences. Keeping data safe is of utmost importance as this helps you jump start your business back up should there be any issues. Create backups of your data and hire professionals to implement secure data systems. The initial investment for protection is minor compared to the fines involving a data breach.


3. Equipment 

From computers to cash registers, the equipment that your business uses are important assets in generating income. Ensure that your supplies, equipment, inventory, and spaces are locked, protected, and insured in the event of a theft or natural disaster.


4. Emergency Finance

Sometimes, you cannot predict what may devastate your business, like a hurricane or a pandemic. Having a savings account as well as pre-approved credit should be useful for your business when you need funds to help mitigate and respond to risks.



Contingency plans are worthless if they are not properly communicated to the team and to customers. That is why every contingency plan must have an accompanying communication plan to align workers with company values and prevent chaos.

To employees, it’s vital that everyone in the company understands the overall contingency strategy, and to get buy-in from leaders as soon as possible. Consider a simple retail store affected by an economy in recession. Without proper communication from their leaders, employees may be confused and angered by the retailer’s decision to reduce pay or close stores. This can be avoided by working with HR to develop a clearly written letter to each employee, as well as frequent meetings discussing contingency plan options.

To customers, contingency plans can quickly be perceived as a red flag if not handled correctly. While maintaining a website or various social media accounts has made it easier to communicate than ever before, you also run the risk of being heavily criticized. Just look at how Greenpeace attacked Nestle’s use of palm oil. Nestle lacked the experience to formulate a swift response, and took a beating in sales and public perception. Consider how your business may be negatively affected by a backlash, and how a contingency plan may turn a risk into an opportunity.


Why Create a Contingency Plan?

Creating a contingency plan means creating an actionable strategy when certain problems arise, especially when they are out of your control. Your ability to continue functioning as a business depends on how well you’ve prepared for these unlikely scenarios. From earthquakes to typhoons, you must consider what you must do in order to protect your people, property, and reputation.

Changes in the economic landscape will also force businesses to be more nimble and adaptive. The world has experienced financial disasters such as market crashes and economic depressions. As a consequence, you must also be able to respond adequately to inflation of materials and labor to ensure that your business does not lose money more than it can handle.


Creating the Contingency Plan

Hopefully, we’ve convinced you of the importance of having a contingency plan for your business. Now it’s time to brainstorm and implement what you’ve learned.

After identifying the potential risks, start to prioritize them in terms of risk level and difficulty of response. Consider your type of business and assess what you can do in order to mitigate these risks or if these risks are a non-factor for you.

If you manage a team, be sure to make them aware of important details of the plan. Obviously there is confidential information that not everyone should know but it’s best to be transparent as much as possible. Conduct team training and repeat annually for new and veteran members to stay up to date. The company that stays prepared will be ready for almost anything that comes their way.