Why your business needs a Plan B.

Recent events have again shown how important it is for businesses to ensure that they have appropriate contingency plans in place to identify and address key risks affecting them.

Most large organisations will have well-developed business contingency plans but this is not always the case for smaller businesses and start-ups.However, it is certainly the case that if these businesses seek funding over the coming months and years they will see an increased focus from investors and banks on such plans as part of their due diligence.

Existing and potential customers and suppliers will also be looking at their supply chains to understand where the weaknesses are and reflect this when making choices between competitors. Insurers too will take account of a business's contingency planning when assessing the level of cover to offer and the associated premiums. Finally, there are the reputational issues to be considered for the business and its management team if something goes wrong and they are viewed as being unprepared.

When putting in place a contingency plan every business will face different risks, but the following basic questions will be relevant for all:-

1. People – is the business reliant on the skills of a small number of key employees (or even a single employee) being available? Who can step in to replace them on a short/long term basis?
2. Ownership/management – is there an appropriate ownership succession plan in place? Do articles of association and shareholder agreements reflect this?
3. Finance – is the business reliant on one investor or bank? What other sources of finance and banking facilities are available if required and is there sufficient headroom?
4. Property – what happens if business premises cannot be accessed either due to damage or legal restrictions? Are records kept securely and backed-up? Can employees work from home and do they have the necessary equipment and employment policies in place?
5. Customers and suppliers – is the business reliant on one particular customer or supplier for its survival and success? Do existing contracts and standard terms of business need to be updated to provide greater clarity on who bears the risk if certain events occur?
6. Technology – Are appropriate disaster recovery and back-up plans in place and are these regularly tested? Is current hardware sufficient or investment required?
7. Insurance – Is existing insurance policy coverage adequate?

Once a plan is in place it should be regularly reviewed to ensure it continues to reflect the business's requirements. New risks will emerge and existing risks will vary in importance over time and as the business develops.

At Brodies we have extensive experience in working with clients to identify and manage their key risks on a day to day basis – if you would like more information please contact a member of the corporate team or your usual Brodies contact.