The economy is tough, but even when the economy is good there are many businesses that close their doors. Some of these failed businesses could have stayed open if they invested a little time in Contingency Planning. Many people don’t want to think of what might happen to their business if things don’t go as planned; however, this missed planning opportunity leaves them with few options when things do go wrong.

Contingency Planning is usually a tiered process. Usually, when you put a Contingency Plan in action you start with the easiest or least dramatic change. For example, your cash flow is low and you are having problems paying the bills. Your first plan may be to secure or utilize a line of credit with your bank. If a line of credit is unavailable or maxed then you need to cut costs. You can approach your landlord and ask for terms to be renegotiated so that you can afford to stay in your current location. You can evaluate your current expenses to determine where you can easily and quickly save money, i.e., reduce marketing or advertising expenses, reduce meals and entertainment, etc. Or as a last resort, you might ask your staff to take a pay cut or layoff some of your employees, which is my least favorite option. These changes may help to increase cash flow long enough to get you through the tough times.

If you offer credit terms to your customers, you could consider factoring your Accounts Receivable (AR). This is a quick way for you to get cash from your AR, but factoring does reduce the overall amount of funds you receive so consider this option carefully. If you are still in need of cash but do not have any more available credit with your bank another option is to sell an interest in your business. The amount of cash you receive will depend upon the type of business you own and your willingness to give up a portion of ownership in your business.

As a last resort you may decide that you would prefer to sell the entire business rather than adding another owner. If a willing buyer cannot be found, you might be able to find someone who is willing to take over the business “as is” including all debts; this is called a transfer of ownership. Ending the business by walking away is not a very good option. There are usually assets that can be sold and/or Accounts Receivables that can be collected. While not easy, you can try to sell the business assets or portions of the business so that you can generate enough cash to pay your outstanding debts.

Whether your business is new or established, Contingency Planning is very important. It does not hurt your business to have a plan in place in case problems occur. On the contrary, this type of planning could very well help you survive tough economic times or an unforeseen disaster.