Without a financial contingency plan in place, these unforeseen events can be harmful to the health of the business, potentially leading to insolvency before a startup is even off the ground.Working for a firm of turnaround practitioners, I provide expertise in terms of business recovery, cash flow and financing.
Putting a simple financial contingency plan in place can give businesses in this situation the lifeline they need. For example, they may generate a revenue but have falling profit margins, or have issues with chronic late payments due to the lack of an effective collections procedure.
In the early stages of a business, there are often simply no resources to absorb any unexpected negative events.
If you’re pre-launch or have only recently gone to market, a contingency plan is likely to be the last thing on your mind; after all, your efforts are focused on making your business a success, and not necessarily thinking about what could go wrong.
But unexpected situations can interrupt the launch of a business and disrupt normal operations.
Take the information above and determine who will be responsible for executing the financial contingency plan.
As a startup business, this responsibility will likely fall on the business owner.
I commonly see perfectly viable startups that are simply unable to function due to a lack of cash flow.
For businesses in the earliest stages, funding streams are often not available, which gives them little choice but to fold. Many of these businesses would be perfectly viable, but they are simply suffering from financial management issues.
Suffering any sort of disaster that stops the normal function of the business can be a huge problem for a company.
But this is compounded for small businesses that may be working on exceptionally tight budgets and schedules. Any and all of these things can be catastrophic for a business, and only you will know which risks are most likely to happen to you.