As 2020 should have demonstrated, the future is an uncertain thing. If you’re running a small business, then you might have made plans for the world as it is today and made reasonable guesses as to what’s likely to happen. But, as we’ve seen, unforeseen circumstances can at any moment descend, and if you aren’t adequately prepared for them, your business could suffer.
What is a Contingency?
Let’s begin with a definition. A contingency, put simply, is something that could happen.
A contingency does not need to be as epic as a global pandemic or a significant financial crisis. It might be something smaller, which hits closer to home. A crucial staff member might suffer a bereavement and need to take time off. An externality might put pressure on your supply chain. A technological disruption might need that you need to rethink your strategy.
By planning for a range of possibilities ahead of time you’ll be able to react quickly when those contingencies arise. In some cases, this preparation is a legal requirement. Fire exits and the accompanying drills, will allow your staff to react appropriately should your premises go up in flames.
Which businesses are at risk?
Small businesses at greater risk than larger ones. This isn’t a direct consequence of the size of a business, but of the way that differently sized businesses are constituted. For example, a smaller business tends to be one that is specialised in a given area and whose assets are concentrated.
While it’s possible for a single convenience store to be burgled during the night, it’s highly unlikely that a nationwide chain of them will be simultaneously burgled. By spreading the business, we can spread the risk.
It’s also worth thinking about the diversity of products and services on offer. Consider an electronics manufacturer which produces just a single obscure component used in a particular sort of device, which is suddenly rendered obsolete by some new innovation from Silicon Valley. Larger businesses of this sort might develop a broader range of products and thus when a contingency of this sort arises, the effect on the business is accordingly smaller. Similarly, freelance workers in finance, faced with the prospect of working from home, might think about diversifying their income which they can start to work towards through a forex demo account.
What Steps can We Take?
Dealing with a contingency means planning for it in advance. Reacting to an unfolding situation rarely leads to considered thinking and wise decisions.
Conduct a Risk Assessment
Any attempt to mitigate risk should begin with an examination of the problem. Your risk assessment should consider what problems could conceivably arise. Look for weaknesses and note which areas of your operation are most vulnerable.
Plan for Every Contingency
Obviously, it’s not possible to consider every single thing that might conceivably happen. Still, it’s worth prioritising the likeliest. Come up with a list of contingencies and formalise a plan for each of them.
As we’ve mentioned, a single revenue stream is a more fragile one. By diversifying, you’ll be able to absorb sudden shocks and more easily react to unfolding situations. In the wake of Covid-19, physical retailers have been massively expanding their online operations – and those which already had a head-start have tended to fare better.
Contingency planning shouldn’t just be a one-off event, but an ongoing process. New possible contingencies are brewing constantly and thus your planning should aim to keep pace with them.