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Contingency Planning

History has shown us that we cannot always take for granted the success of an initial plan when facing trying circumstances. We need to be prepared to formulate a contingency strategy should the primary course of action be unsuccessful.

Not only does this provide the best chance of continuing business success, it also demonstrates forward-thinking by directors. With an ever-present risk of financial decline in our global economy, contingency planning offers confidence to all parties who hold a vested interest in a company’s ongoing success.

The purpose of a contingency plan

Contingency plans are typically devised to help mitigate the effects of a potentially disastrous situation. This could be the death of a key member of staff, a cyber-attack, destruction of a key asset (such as premises), or general mismanagement. The contingency plan will set out what steps need to be taken in order to restore order to the company and allow business operations to continue and remain viable. In certain industries, a contingency plan may be utilised to prepare for dealing with a more positive scenario such as an unexpected influx of orders, or rapid company growth. 

What is included in a contingency plan?

Depending on the company’s structure, turnover, and the sector it operates within, a contingency plan may include the following: 

  • Schemes of Arrangement
    A scheme of arrangement allows for restructuring of the company while avoiding a formal insolvency procedure. The benefits of this are clear:  having potential debt forgiveness without triggering any insolvency break clauses in contracts which a formal insolvency event, such as a company voluntary arrangement, would.
  • Accelerated Mergers & Acquisitions
    Planning for the possibility that an exit from the business may be required at some stage. Carefully considered preparation will ensure that value for all stakeholders is maximised and damage to the company’s reputation is minimised. 
  • Decline Curve Planning
    Knowing where the company is in its trading cycle is an integral part of planning for the future. The decline curve is an industry known illustration of identifying where a business is in its trading cycle. As you head further along the decline curve, the options for rescuing the business are significantly reduced. If plans are made before heading down the decline curve, you are in a much better position to save business and, in the process, maintain its value.
  • Raising Fresh Equity for Growth
    A contingency plan does not just have to focus on worst-case scenarios. A contingency plan can also be put in place to deal with significant growth of the company and how this would work in practice. As part of this we would look at the various options available for raising growth capital and understanding the pros and cons of such a move.

Risk management is a crucial element to running any business, and you should ensure you are well covered should the worst happen. By taking an individual approach we can tailor-make a plan which works for you and your business, taking into account the specific challenges you may face in the future and advising on the best ways to overcome them.

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