Most Texas entrepreneurs know about the importance of writing business plans for their start-up companies. Entrepreneurs also should plan for what will need to be done if things do not go as planned or if emergencies occur. In this contingency plan, the ultimate goal is to understand what will be necessary for business survival in adverse circumstances.
A business owner who is planning for the unexpected should think about several different things. First, a “fudge factor” should be considered. For example, a planned profit margin may be acceptable but become unacceptable it is decreased by 5-10% or more. When planning for the cost of items or services, it is a good idea to add fudge factor to whatever figure the business owner has arrived as an acceptable profit margin, this exercise could result in a higher profit and will result in a greater understanding the part of the owner of the risks involved with the business and of the importance of each of the factors utilized to compute profit.
One crucial factor the owner of a new company should consider is time. An owner may be able to fund a new company for six months, but may be in severe trouble if positive cash flow does not come within twelve months. A planner must keep in mind that goals generally take longer than anticipated to be achieved. This can help when items or services cost more than what was budgeted. Owners should also remember that things often take more time than they might think. They should thus plan for the additional time and think about what their companies will do during the interim. As Robert Burns wrote: “The best laid schemes o’ mice and men; Gang aft a-gley.” Be prepared.
Understanding the importance of contingency planning is important for all business start-ups. An attorney who has experience in providing advice and counsel to new ventures can often be of assistance in identifying what aspects of the company’s business may need to have back-up plans.