Having a financial contingency plan allows a business to react quickly and more effectively in times of economic uncertainty. In young businesses, it can often mean the difference between the success or failure of the entire enterprise so it’s an important consideration for an organisation looking to promote longevity and sustainability of profits. Financial uncertainty can stem from many different sources but these five steps can help you create a contingency plan that will reliably safeguard your business from avoidable harm.

1. Assess the risks

Firstly, assess the potential threats that your company may face. Create a list of all the areas of your organisation that could be susceptible to harm from unplanned events or situations. Consider every aspect of your business and break the most damaging potential scenarios down into specific detail. For example, identify the risk of key clients or other revenue sources abandoning your business.

Order the threats by how likely they are to occur and how damaging they would be if they did. Having a list of the most problematic scenarios will help you mitigate against the worst effects and minimise their impact on your trade.

2. Prioritize resources

Identify areas of your business that are not absolutely critical to its continued operation so you know what you can afford to jettison in the case of financial emergency. Resources such as company cars or complementary marketing budgets may not be crucial to the basic premise of your business so should be considered more dispensable than other areas of your organisation.

Conversely, you should also identify any aspect of your business that is absolutely critical to its success so that you can commit time, money and energy to preserving its functionality and protecting it from harm. By prioritizing your resources, you can increase the efficiency of your contingency efforts.

3. Strategize

By combining the data gathered from the first two steps, you should now create a strategy to deal with the potential threats. Commit more time to the most important resources and most likely threats and create a specific and detailed plan of action for each potential scenario. Your contingency plan should involve all areas of your business, so ensure your relevant staff members are aware of the role they will have to play.

If you are struck by financial uncertainty, your plan will provide you with a clear and concise strategy to which you can continually refer, so make it as simple yet effective as possible. Assign roles and responsibilities as you deem appropriate to make sure every individual in your organisation is singing from the same hymn-sheet.

4. Diversify

Reduce the impact of financial uncertainty by diversifying your revenue sources and lines of credit. The fewer sources of credit or capital you have, the more susceptible you will be to financial insecurity. If a key client takes their business elsewhere, you need to have other revenue sources to fall back on. Similarly, if a main creditor decides to back out of the arrangement, you will need further supplies of capital.

Identify multiple sources of credit and don’t become overly reliant on individual clients. Mitigate the risk by diversifying your financial supplies and you’ll be more adaptable and resistant to change.

5. Review

Contingency planning is an on-going endeavour. Continually review your processes and your ability to deal with any threats your business may face. The economic factors affecting your organisation are continually changing so your strategy for dealing with unforeseen events must evolve as well. Arrange a regular timeframe for reviews to occur and open channels of communication throughout your business so that any individual or department can convey fears or information relating to your financial challenges.

Being prepared for economic uncertainty is integral to improving your chances of successfully weathering financial storms. Every business has to navigate unforeseen challenges at some point, so formulating an adaptable and effective contingency plan is vital to achieving long-term prosperity.