Check your risk to exposure

Planning for threats that could affect your business is not a happy task. The list of possible challenges is depressing: fire, flood, bird flu or an act of terrorism are just some of the possibilities to consider.

Your business could also be hit by an IT meltdown, a hiccup in cash flow, severe changes in currency values, or a power outage.

There is an argument that says, why bother worrying about eventualities that might never happen, let alone invest money in preparing for them? But a recent survey of SMEs showed that 44 per cent had no organised contingency plans, and many businesses are too relaxed about their chances of escaping trouble.

Research has also shown that 80 per cent of businesses that have failed to plan for disaster, fail within six months of the disaster taking place.

The recent weakening of the dollar reminds us that there are forces outside our influence that could adversely affect our businesses. Add to that an overdependence on too few customers, or the unexpected departure or illness of a key member of staff, and a small business could find itself scuppered.

So, what can be done? Use contracts to tie-in customers and staff as much as you can. Key man insurance, which pays out if a vital member of staff falls seriously ill or dies, is another good way to mitigate the risk.

Choosing the right type of finance is also a positive step towards avoiding future disaster. Businesses sometimes borrow on a short-term basis because they see it as cheaper. But this finance can be called back with no notice. If you are funding something substantial, like a warehouse, think about using long-term mortgages instead.

Devising a plan to mitigate risk need not be an onerous undertaking. Decide what are the most likely and serious threats, and then start to develop a sensible plan. This may mean accepting some risks and doing nothing about them if you think the cost of managing the risk is too high.

Always look at insurance and ask yourself how best it can be used to cover part of the cost. But bear in mind that insurance will never cover all the costs of a disaster: it will not, for example, buy you back your reputation.

Full staff drills are not necessary, but it is a good idea to walk through the disaster plan with key members of staff on a regular basis, and make sure that they understand the role they will have to play should a disaster happen.

Planning for the unexpected does not just mean that you sleep better at night. Organisations important to your business – your bank, other funders, customers and supplier – will feel more secure doing business with your company and planning will only improve your standing with them.

Some experts believe that it will only be a matter of time before large corporations and insurers start requiring evidence of some sort of continuity planning, with large businesses particularly looking to develop a robust supply chain.

The British Standards Institute has produced BS25999, a framework to cover continuity planning that even the smallest of businesses can achieve. It provides step-by-step guidance to business continuity management.