When business consultants talk about preparing for unforeseen problems, they frequently commingle the terms contingency and continuity. These terms are not synonymous. There are important differences between them.
Contingency Planning
Contingency planning is generally accepted to mean preparing for an event that can result in financial and/or emotional upheaval. This could be death, disability, divorce, disaster (i.e. fire, weather, etc.), a cyber-attack or identity theft. Generally speaking, these are all insurable events. A good exit planner will often recommend insurance as a major component of your contingency plan.
Every business owner needs a good contingency plan.
Continuity Planning
Exit planning is typically designed around a voluntary departure from the business, but what if it isn’t voluntary? While contingency planning covers a variety of financial risks, continuity planning is focused on operational concerns if the owner is absent.
Continuity planning starts with a task-based assignment. We ask questions like, who opens the business? Who informs customers, vendors and the bank? Are there customers and vendors who require special treatment? Who distributes funds and signs contracts?
Additionally, if certain employees are expected to step-up to a higher level of responsibility, will they receive additional compensation with their added duties? Employees will shoulder added duties for a period of time out of loyalty, but loyalty does have limits. Who are the key advisors they should consult with if they have questions? Are there limits on the employees’ decision-making authority?
Contingency and Continuity
These are just a few of the things required on Day One. The owner’s extended absence or permanent absence will also involve decisions about credit facilities, family income, real estate, buy/sell agreements, and the long-term disposition of the business. As exit planners, we take a practical look at the issues of an owner’s absence from the business, whether planned or unplanned. Contingency and continuity planning are just two components of preparing for “life after the business”. There are many others. Are you prepared?
FPA Owner Transitions 