Mar 2023
4 mins read

7 Reasons Why Every Start-Up Needs a Contingency Plan

There is no ‘right’ age to explore your entrepreneurial ambitions. With a great idea and genuine motivation, you can launch a successful new business in your 20s, 40s, 50s or even after retirement. But while India has one of the world’s largest start-up ecosystems, 90% of new ventures fail within 5 years of inception1. One of the most common problems with new start-ups is the failure to prepare for setbacks. A well thought-out contingency plan could come to your aid in such scenarios.
Here are 7 advantages of creating a contingency plan:

Reduce business risks

Several unexpected problems can crop up after you launch a new business. There could be a recession, decline in interest in your service/product, cashflow issues etc. A contingency plan could help protect you against such risks, which could otherwise derail your operations.

point 1

Prevent production losses

Disruptions such as natural disasters or power outages could impact your production capacity. A contingency plan puts in place measures to revive production as quickly as possible in such scenarios, averting significant losses.

point 2

Encourage thorough business assessment

A contingency plan encourages business leaders to consider all the possible eventualities that can occur. It pushes them to closely analyse their enterprise's opportunities, strengths and weaknesses. Such thorough assessments unearth significant insights and pave the way for business growth in the longer run. 

point 3

Boost credit availability

Newer businesses rely on credit as they often have lower equity investments. Taking raw materials on credit also helps in keeping production costs low. A good contingency plan can boost vendors’ confidence in your enterprise, and improve credit availability.

point 4

Avoid panic

You need a cool head in a crisis, but the lack of an action plan can lead to panic. A clear, well-articulated contingency plan encourages businesses to look past fear and quickly switch to recovery mode. 

point 5

Avoid high-interest loans

When facing financial issues, businesses often turn to high-interest loans to tide them over a crisis. A contingency plan usually involves creating an emergency fund, which can provide much-needed respite in such situations and save your business from having to take on expensive loans.  

point 6

Improve resilience and trustworthiness

If you struggle to manage a business crisis, it can affect your reputation among employees and customers. A contingency plan makes you resilient and prepares you for the worst. In the process, it earns the trust of your employees and encourages loyalty to your enterprise and your brand. 

point 7

A contingency plan offers a host of advantages, securing the prospects of your new venture and its stakeholders. Don’t wait for a disaster to occur – create and implement a contingency plan today to avoid panic and losses later. 
1. https://www.thehindubusinessline.com/info-tech/90-startups-in-india-fail-within-5-years-ibm/article9704251.ece

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