What Is a Contingency Budget?

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Contingency planning involves setting out a course of action in case your business experiences a serious disruption, such as a fire or earthquake. Lenders may request a contingency plan before lending because they want to know that you will be able to continue functioning in a crisis. Such a contingency plan requires a contingency budget that will enable you to finance your recovery, because you may not have sales until you are fully operational.

Temporary Offices

If your company loses access to your offices during a crisis, you will need temporary quarters. Check in your area to see what kind of office spaces are available on a temporary basis. Compare prices and come up with an estimate of the kind of budget you will need to secure temporary quarters.

Computers and Electronics

If you will need computers, printers and fax machines to continue functioning, you should contact suppliers of new or used equipment to find prices for replacing your electronic equipment. You may also find a company that can rent equipment to you. Get prices and set a budget based on your estimate of the equipment that would be essential to your recovery.

Phones

You may need telephone land lines to continue functioning as a business. You may be able to have the phone company establish your original phone number at the new location in temporary offices. Check the costs for lines, equipment and service for re-establishing telecommunications for your business. Make this cost part of your contingency budget.

Outsourcing

You will have to continue with any current outsourcing, and you may have to outsource some additional functions in order to continue to provide service to your customers. Plan for the functions you would need to outsource in an emergency and find prices for those services. This outsourcing expense must be included in your contingency budget.

Supply Chain

You will need to keep your supplies coming in as usual. This means you will need cash to pay suppliers. Look at your monthly supply expenses for a 12-month period and find a monthly average. This is your budget for one month of paying suppliers. Include supply expenses in your contingency budget for at least four months.

Payroll

You will have to continue meeting payroll, even if your sales are interrupted temporarily. Set aside enough money in your contingency budget to continue paying employees so that you won’t lose them in a catastrophe.

Budget Justification

Though setting aside money for an unlikely crisis may seem like a low priority, you must consider the money you could lose if you don’t have a contingency plan and a contingency budget. You could not only lose money in a disaster, you could lose the entire business. A contingency budget is like insurance. Though it does require significant cash, it could give you the ability to recover and continue making a profit.

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