Contingency plans for businesses

Here are some of the more commonly encountered misperceptions relating to business contingency plans.

I don’t need a contingency plan

Even if you are operating as a sole trader, something might go wrong that puts your entire business at risk.

Should such a thing happen, you may be forced to do one of two things, as you try to deal with the problem:

  • wing it and make it up as you go along;
  • put into place some contingency plans that you had made to cover such eventualities.

Many business owners, stakeholders and banks, might expect the responsible business to be able to do the latter rather than the former.

If you haven’t already done so, it might be advisable to start to think about the risks you face and how you would deal with them in a worst case scenario.

My premises, stock and liabilities are all covered.  I don’t need anything else

Perhaps not but are you sure you have fully analysed the position?

For example, how would your business cope if it lost one of your fellow directors or a key technical expert?  You might think that losing them to another organisation is unlikely but don’t forget things such as critical illness and even premature death may rob you of their contribution.

If a major shareholder unfortunately died, would you wish to lose their shares to someone else or would you wish to purchase them yourself?  Would you have the capital to do so?

These are the sorts of questions that you need to ask when you are thinking about your exposures to key individuals.

Even if I have such exposures, I can’t do anything about them

You may not, of course, be able to do much to guarantee that one of your critical people will avoid being struck down with an illness or prematurely die.

What you may be able to do, however, is to minimise the financial impact of such events on your company.

You could take out what is called a keyman insurance policy.  This would allow you to claim a range of financial benefits in the event that misfortune struck an individual in your company and as a result, your company itself.

Examples might include being able to purchase back shares held by a major shareholder or covering the costs of emergency temporary recruitment to fill the gaps.

Providers such as Drewberry Group Insurance may have a range of such policies on offer and related ones such as staff health insurance and income protection cover etc.

Having contingency insurance is too expensive

Almost any form of insurance providing any form of cover, is typically regarded as being too expensive – right up until the point we find ourselves in the position of needing to make a claim.

Rather than dismissing this as an option, it might be worth seriously reviewing your position and just how you might suffer financially if one of your business-critical colleagues was no longer able to perform their role.