The new age of business management has freed us from many capital procurement and business financing rules. While financial contingency planning has certainly become more flexible, it is important to note that this has also led to fewer opportunities for mitigating risks. Even if the economic conditions are not currently affecting your business’s profits, your business could suffer from the lack of a good financial plan.
Before understanding the tips and techniques of creating an effective plan, let’s have a look at what financial contingency planning is all about.
Understanding financial contingency plans for businesses
A financial contingency plan refers to preparing a course of action and allocating finances and resources during times of financial crisis or other emergencies. A majority of businesses have a narrow view of emergencies. These can include a fire, product failure, economic crisis, etc. Hence, financial contingency plans simply aim to stabilise the business.
Business contingency plans should not be confused with crisis management plans. The former allows you to manage emergencies through a proactive approach, but the latter refers to taking a reactive approach.
Why does your business need a financial plan?
At the start of 2017, there were 5,593 businesses at the verge of insolvency in the UK. By the end of the first quarter, the number decreased to 3,967. Companies can thus reduce chances of insolvency by implementing an effective financial contingency plan.
These comprehensive plans aim to minimise financial loss and enable your business to remain operational, even during economic downturns. Above all, contingency plans eliminate stress and panic during financial emergencies, which enables you to improve upon and implement more effective business strategies irrespective of the regional, national or global economic conditions.
A practicable and efficient contingency plan is necessary to prevent insolvency. Ideally, you should seek advice for preparing a financial contingency plan or hire a professional contingency planning service to ensure that your business is 100 per cent secure from any kind of financial risk.
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Tips to create a concrete and fool-proof financial plan
The following tips are useful for creating an effective financial plan.
Create a priority list of resources
A fool-proof contingency plan is based on the theory of minimum expense and maximum business stability and profits. Therefore, create a priority list of all your business resources and mention the resources which without, your business cannot operate. These may include IT systems, physical assets, human resource, etc.
Create a separate plan for possible risks and potential solutions
When creating the contingency plan, involve experts from each department to make sure that your business is capable of surviving any kind of risk. Create a list of possible risks along with their solutions and the resources required to mitigate or manage the risk.
Also, prioritise risks i.e. create another list of possible risks and threats which are most likely to occur. Mention the potential timeline for these risks and threats. For each threat, draft two types of plans. The first plan will provide details of strategies and techniques to minimise the intensity of risks associated with the threat. The second plan should contain techniques to mitigate the threat and strengthen your business.
Include a distribution plan
You need a separate plan to distribute responsibilities to execute the financial contingency plan. The distribution plan should include details of human resource involved in the execution of the contingency plan, channel of information distribution and details of access to the organisation’s important documents before and during the crisis.
Revise and maintain
The changing market conditions expose your organisation to different types of risks. Therefore, it is necessary to continually revise and update your contingency plan and keep track of important resources.
Prioritise your plan
The small business industry is aggressively growing in the UK. New businesses are thus more vulnerable than ever to insolvency compares to established companies. However, new businesses as well as established companies should be prepared to deal with crisis in advance with the help of a fool-proof plan.
From recession to changing market conditions or new competitors, businesses can face various types of challenges. Hence, a professional contingency plan is essential for ensuring that your business does not become insolvent during a financial emergency.